Gold’s Record Run: Signals of Crisis or a Potential Shift in the Monetary Order? (2nd of 3 Part Series)

 

In the course of history various commodities have been employed as media of exchange. A long evolution eliminated the greater part of these commodities from the monetary function. Only two, the precious metals gold and silver, remained. In the second part of the 19th century, more and more governments deliberately turned toward the demonetization of silver. In all these cases what is employed as money is a commodity which is used also for nonmonetary purposes. Under the gold standard, gold is money and money is gold. It is immaterial whether or not the laws assign legal tender quality only to gold coins minted by the government—Ludwig von Mises 

This post is the second in a three-part series 

In this Issue 

Gold’s Record Run: Signals of Crisis or a Potential Shift in the Monetary Order?

I. Global Central Banks Have Driven Gold’s Record-Breaking Rise

II. A Brief Recap on Gold’s Role as Money

III. The Fall of Gold Convertibility: The Transition to Fiat Money (US Dollar Standard)

IV. The Age of Fiat Money and the Explosion of Debt

V. Central Banks: The Marginal Price Setters of Gold

VI. Is a U.S. Gold Audit Fueling Record Prices? 

Gold’s Record Run: Signals of Crisis or a Potential Shift in the Monetary Order? 

The second part of our series examines the foundation of the global economy—the 54-year-old U.S. dollar standard—and its deep connection to gold’s historic rally. 

I. Global Central Banks Have Driven Gold’s Record-Breaking Rise 

Global central banks have played a pivotal role in driving gold’s record-breaking rise, reflecting deeper tensions in the global financial system. 

Since the Great Financial Crisis (GFC) of 2008, central banks—predominantly those in emerging markets—have significantly increased their gold reserves, pushing levels back to those last seen in 1975, a period just after the U.S. government severed the dollar’s link to gold on August 15, 1971, in what became known as the Nixon Shock. 

This milestone reminds us that the U.S. dollar standard, backed by the Federal Reserve, will mark its 54th anniversary by August 2025.

Figure 1

The accumulation of gold by central banks, particularly in the BRICS nations, reflects a strategic move to diversify away from dollar-dominated reserves, a trend that has intensified amid trade wars, sanctions, and the weaponization of finance, as seen in the freezing of Russian assets following the 2022 Ukraine invasion.  (Figure 1, upper window)

The fact that emerging markets, particularly members of the BRICS bloc, have led this accumulation—India, China, and war-weary Russia have notably increased their gold reserves, though they still lag behind advanced economies—reveals a growing fracture in the relationship between emerging and advanced economies.  (Figure 1, lower graph and Figure 2, upper image)  

Figure 2

Additionally, their significant underweighting in gold reserves suggests that BRIC and other emerging market central banks may be in the early stages of a structural shift. If their goal is to reduce reliance on the U.S. dollar and close the gap with advanced economies, the pace and scale of their gold accumulation could accelerate (Figure 2, lower chart)

Figure 3

As evidence, China’s central bank, the People’s Bank of China (PBOC), continued its gold stockpiling for a fourth consecutive month in February 2025. (Figure 3, upper diagram)

Furthermore, last February, the Chinese government encouraged domestic insurance companies to invest in gold, signaling a broader commitment to gold as a financial hedge. 

This divergence underscores a deepening skepticism toward the U.S.-led financial system, as emerging markets seek to hedge against geopolitical and economic uncertainties by strengthening their gold reserves 

In essence, gold’s record-breaking rise may signal mounting fissures in today’s fiat money system, fissures that are being expressed through escalating geopolitical and geoeconomic stress. 

II. A Brief Recap on Gold’s Role as Money 

To understand gold’s evolving role, a brief historical summary is necessary. 

Alongside silver, gold has spontaneously emerged and functioned as money for thousands of years. Its finest moment as a monetary standard came during the classical gold standard (1815–1914), a decentralized, laissez-faire regime in Europe that facilitated global trade and economic stability. 

As the great dean of the Austrian School of Economics, Murray Rothbard, explained, "It must be emphasized that gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium. Above all, the supply and provision of gold was subject only to market forces, and not to the arbitrary printing press of the government." (Rothbard, 1963) 

However, this system was not destined to endure. The rise of the welfare and warfare state, supported by the emergence of central banks, led to the abandonment of the classical gold standard. 

As Mises Institute’s Ryan McMaken elaborated, "This system was fundamentally a system that relied on states to regulate matters and make monetary standards uniform. While attempting to create an efficient monetary system for the market economy, the free-market liberals ended up calling on the state to ensure the system facilitated market exchange. As a result, Flandreau concludes: ‘[T]he emergence of the Gold Standard really paved the way for the nationalization of money. This may explain why the Gold Standard was, with respect to the history of western capitalism, such a brief experiment, bound soon to give way to managed currency.’" (McMaken, March 2025) 

The uniformity, homogeneity, and growing dependency on the state in managing monetary affairs ultimately contributed to the classical gold standard’s demise. 

III. The Fall of Gold Convertibility: The Transition to Fiat Money (US Dollar Standard) 

World War I forced governments to abandon gold convertibility, leading to the adoption of the Gold Exchange Standard—where only a select few currencies, such as the British pound (until 1931) and the U.S. dollar (until 1933), remained convertible into gold. 

Later, the Bretton Woods System attempted to reinstate a form of gold backing by pegging global currencies to the U.S. dollar, which in turn was tied to gold at $35 per ounce. 

However, rising U.S. inflation, fueled by fiscal spending on the Vietnam War and social welfare programs, combined with the Triffin dilemma, led to a widening Balance of Payments (BoP) deficit. Foreign-held U.S. dollars exceeded U.S. gold reserves, threatening the system’s stability. 

As economic historian Michael Bordo explained: "Robert Triffin (1960) captured the problems in his famous dilemma. Because the Bretton Woods parities, which were declared in the 1940s, had undervalued the price of gold, gold production would be insufficient to provide the resources to finance the growth of global trade. The shortfall would be met by capital outflows from the US, manifest in its balance of payments deficit. Triffin posited that as outstanding US dollar liabilities mounted, they would increase the likelihood of a classic bank run when the rest of the world’s monetary authorities would convert their dollar holdings into gold (Garber 1993). According to Triffin, when the tipping point occurred, the US monetary authorities would tighten monetary policy, leading to global deflationary pressure." (Bordo, 2017)

Bretton Woods required a permanently loose monetary policy, which ultimately led to a mismatch between U.S. gold reserves and foreign held dollar liabilities. 

To prevent a run on U.S. gold reserves, President Richard Nixon formally ended the dollar’s convertibility into gold on August 15, 1971, ushering in a fiat money system based on floating exchange rates anchored to the U.S. dollar. 

IV. The Age of Fiat Money and the Explosion of Debt 

With the shackles of gold removed, central banks gained full control over monetary policy, leading to unprecedented levels of inflation and political spending. Governments expanded their fiscal policies to fund not only the Welfare and Warfare State, but also the Administrative/Bureaucratic State, Surveillance State, National Security State, Deep State, Wall Street Crony State, and more. 

The most obvious consequence of this system has been the historic explosion of global debt. The OECD has warned that government and bond market debt levels are at record highs, posing a serious threat to economic stability. (Figure 3, lower chart) 

V. Central Banks: The Marginal Price Setters of Gold 

Ironically, in this 54-year-old fiat system, so far, it is politically driven, non-profit central banks—rather than market forces—that have become the marginal price setters for gold. 

Unlike traditional investors, central banks DON’T buy gold for profit, but for political and economic security reasons. 

The World Gold Council’s 2024 survey provides insight into why central banks continue to accumulate gold: "The survey also highlights the top reasons for central banks to hold gold, among which safety seems to be a primary motivation. Respondents indicated that its role as a long-term store of value/inflation hedge, performance during times of crisis, effectiveness as a portfolio diversifier, and lack of default risk remain key to gold’s allure." (WGC, 2024) 

This strategic accumulation reflects a broader trend of central banks seeking to insulate their economies from the vulnerabilities of the fiat system, particularly in an era of heightened geopolitical risks and dollar weaponization.

Figure 4 

The Bangko Sentral ng Pilipinas (BSP) has historically shared this view. (Figure 4, upper graph) 

In a 2008 London Bullion Management Association (LBMA) paper, a BSP representative outlined gold’s importance in Philippine foreign reserves—a stance that remains reflected in BSP infographics today. 

Alas, in 2024, following criticism for being the largest central bank gold seller, BSP reversed its stance. Once describing gold reserves as "insurance and safety," it now dismisses gold as a "dead asset"—stating that: "Gold prices can be volatile, earns little interest, and has storage costs, so central banks don’t want to hold too much." 

This shift in narrative conveniently justified BSP’s recent gold liquidations. 

Yet, as previously noted, history suggests that BSP gold sales often precede peso devaluations—a warning sign for the Philippine currency. (Figure 4, lower window)

VI. Is the Propose U.S. Gold Audit Help Fueling Record Prices? 

Finally, could the Trump-Musk push to audit U.S. gold reserves at Fort Knox be another factor behind gold’s rally? 

There has long been speculation that U.S. Treasury gold reserves, potentially including gold stored for foreign nations, have been leased out to suppress prices.

Figure 5

Notably, Comex gold and silver holdings have spiked since these audit discussions began. Gold lease rates rocketed to the highest level in decades last January. (Figure 5, top and bottom charts) 

With geopolitical uncertainty rising, central bank gold buying accelerating, and doubts growing over fiat stability, gold’s record-breaking ascent may be far from over. 

Yet, it’s important to remember that no trend goes in a straight line.

___

References 

Murray N. Rothbard, 1. Phase I: The Classical Gold Standard, 1815-1914, What Has Government Done to Our Money? Mises.org 

Ryan McMaken, The Rise of the State and the End of Private Money March 25,2025, Mises.org 

Michael Bordo The operation and demise of the Bretton Woods system: 1958 to 1971 CEPR, Vox EU, April 23, 2017 cepr.org 

World Gold Council, Gold Demand Trends Q2 2024, July 30,2024, gold.org

Do Gold’s Historic Highs Predict a Coming Crisis?

 

Massive money printing and debt accumulation have gone on for something like 80 years, and the system has held together. Why should it end now? Maybe they can wring one more cycle out of the corrupt Keynesian system. That said, I think we have finally reached the actual crisis point. Although this certainly isn’t the first time the inevitable seemed imminent…—Doug Casey 

This three-part series sheds light on the multifaceted story of gold: 

Part one examines how gold price surges have predicted global crises, from the GFC to today. 

Part two analyzes the role of central banks in driving these record highs. 

Part three assesses how these highs could impact the shares of listed Philippine gold mining companies. 

In this issue

Do Gold’s Historic Highs Predict a Coming Crisis?

I. Gold at All-Time Highs: A Beacon of Crisis or Recession Ahead?

II. Gold, The Philippines and the Pandemic Recession:

III. The Bigger Picture: Gold as a Recession or Crisis Bellwether

IV. Gold Outshines the S&P 500: Gold’s Crisis Predictive Power in Focus

Do Gold’s Historic Highs Predict a Coming Crisis? 

First series on gold: Surging USD Gold Prices: A Predictor of Crises from GFC to Pandemic—What’s Next? 

I. Gold at All-Time Highs: A Beacon of Crisis or Recession Ahead?

Figure 1

Is the recent record-breaking streak of gold prices signaling an impending global recession or crisis? 

The relationship between gold and the US GDP has undergone a profound transformation. 

Ironically, gold’s multi-year climb began during the dotcom recession. It surged ahead of the Great Recession of 2007-2009—or 2008 Financial Crisis—and, while falling during its culmination, gained momentum once again before the climax of the Euro crisis. (Figure 1, upper and lower charts) 

Between May 2001 and September 2011, gold prices soared approximately 6.9 times, from $270 to $1,873. 

Thanks to interventions from central banks like the Federal Reserve (FED) and the European Central Bank (ECB), as well as their global counterparts, volatility subsided, and risk perception diminished, ushering in a “goldilocks” period. During this time, gold prices retraced roughly 43%, falling to $1,060 by December 2015. 

However, China’s unexpected currency devaluation in August 2015 triggered a stock market crash lasting until February 2016, further compounded by Donald Trump’s election, ignited the next leg of gold’s bull market, as investors once again sought refuge in the precious metal. 

Gold reached new heights during the US repo crisis of 2019, continuing its ascent prior to the onset of the global pandemic recession. 

It achieved an interim peak of $2,049 in August 2020, representing a remarkable 93.33% increase from its low in 2015. 

Despite the outbreak of the Russia-Ukraine war in February 2022 and peak inflation in mid-2022, gold prices slid by 20%, hitting a low of $1,628 in September 2022. 

The Bank of England’s bailout of UK pension funds during the Truss budget crisis in October 2022 provided support or put a floor under gold prices, stabilizing the market. 

More recently, geopolitical conflicts—including the Israel-Palestine war and its extension to the Israel-Hezbollah conflict—along with rising tensions in hotspots like the South China Sea, escalating global protectionism, and the increased weaponization of finance, have fueled uncertainty. 

Additionally, the re-election of Donald Trump in 2024 and his administration’s policies, including trade wars, demands for the annexation/acquisition of Greenland, and control over the Panama Canal, have added to global economic and geopolitical instability. 

The resumption of hostilities in the Middle East, particularly Israeli attacks in Gaza and Beirut following a broken ceasefire, has further destabilized the region. 

In the Russia-Ukraine conflict, the UK and France have threatened to send troops to support Kyiv, risking escalation as Trump pushes for a quick resolution with concessions to Russia.

On April 2, 2025, Trump’s administration imposed 25% tariffs on all imported cars and light trucks, effective April 3, with plans for broader “reciprocal tariffs” targeting countries like Canada, Mexico, and the EU, prompting threats of retaliation and fears of a global trade war.

Figure 2

The ongoing trade war, did not emerge in a vacuum; rather, it reflects a broader, underlying trend of deglobalization. The rising number of import curbs—spanning tariffs, antidumping duties, import quotas, and other restrictions—represents the cumulative anti-trade measures undertaken by global authorities. 

According to Global Trade Alert, the number of import curbs in force among major economies, including the U.S., EU, China, Canada, Mexico, and the rest of the G20, has surged from under 1,000 in 2008 to over 4,000 by 2024 (Biden era), with the U.S. and EU leading the increase. (Figure 2) 

This proliferation of trade barriers has not only strained economic ties but also influenced foreign relations, contributing to a slippery slope of deglobalization that has materially heightened geopolitical stress. 

For instance, the U.S.’s aggressive tariff policies have prompted retaliatory measures from trading partners, fracturing alliances and fostering and deepening a climate of mistrust, which in turn exacerbates conflicts in regions like the South China Sea and Ukraine. 

This deglobalization trend, coupled with geopolitical flashpoints, has driven investors to seek safe-haven assets like gold, pushing prices to new all-time highs, as shown in the earlier chart, where NYMEX gold futures prices have spiked since 2023 even as the U.S. nominal GDP share of global GDP remains flat. 

II. Gold, The Philippines and the Pandemic Recession

Back in February 2020, I warned: 

In an interview with Ms. Gillian Tett at Council of Foreign Relations (CFR) on October 2014, former Fed chief Alan Greenspan aptly remarked: 

Remember what we're looking at. Gold is a currency. It is still, by all evidence, a premier currency, where no fiat currency, including the dollar, can match it. And so that the issue is if you are looking at the question of turmoil, you’ll find as we always find in the past, it moves into the gold price. 

The bottom line: Gold's uprising against central banking fiat currencies warn that the world is in the transition of entering the eye of the financial-economic hurricane! (Prudent Investor Newsletter)

It turned out that a global recession had already begun. 

In the Philippines, the first local COVID-19 case was reported in early March 2020, prompting the Duterte administration to impose a Luzon-wide lockdown, officially termed "Enhanced Community Quarantine." 

The Philippine economy subsequently plunged into a recession, with GDP contracting from Q1 2020 to Q1 2021.

Figure 3

Gold in the priced in the Philippine peso also soared ahead of the pandemic crisis. (Figure 3) 

III. The Bigger Picture: Gold as a Recession or Crisis Bellwether 

The charts illustrate a clear pattern: since the "Fed Put" during the dotcom bubble, gold’s record-breaking runs have consistently foreshadowed major recessions, economic crises, and geopolitical upheavals. 

These include the GFC, the Eurozone debt crisis, the U.S. repo crisis, the global pandemic recession, and the recent wave of conflicts and protectionist policies. Gold has also proven responsive to the serial interventions of central banks and governments, which have deployed easy money regimes and fiscal stimulus to mitigate these crises. 

For instance, the chart highlights how gold prices dipped during periods of perceived stability (e.g., post-2011 Euro crisis) but surged ahead of crises, reflecting its role as a leading indicator of economic distress. 

Is gold’s series of epic all-time highs yet another chapter in this unfolding saga of economic and geopolitical turmoil? The historical correlation between gold price surges and impending crises suggests that investors should remain vigilant 

IV. Gold Outshines the S&P 500: Gold’s Crisis Predictive Power in Focus

Figure 4

Finally, the mainstream financial narrative often compares gold’s performance to that of the stock market, framing gold as a speculative asset. In this context, gold has significantly outperformed the U.S. S&P 500 by a substantial margin over the past century, particularly since 2000.

However, this comparison is somewhat of an apples-to-oranges exercise. Gold, as a safe-haven asset, serves a fundamentally different role than equities, which are driven by corporate earnings, economic growth, and investor sentiment.

Gold’s value is tied to its scarcity, historical role as money, and its appeal during times of uncertainty, whereas the S&P 500 reflects the performance of the U.S. economy’s largest companies.

Despite this distinction, the comparison underscores gold’s resilience and appeal in an era marked by economic and geopolitical turbulence.

For a more nuanced perspective, the chart’s lower section presents the S&P 500-to-gold ratio, which measures how many ounces of gold are needed to buy the S&P 500 index. This ratio reveals a striking technical pattern: a massive head-and-shoulders formation, a bearish indicator in technical analysis that often signals a potential reversal. 

If this pattern completes, it could indicate a significant outperformance of gold over the S&P 500 in the coming years, potentially driven by a crisis that erodes confidence in equities while boosting demand for gold. 

Given gold’s historical predictive prowess for crises, as evidenced by its price surges before major economic and geopolitical upheavals, this head-and-shoulders pattern may well be fulfilled. 

____

References 

Prudent Investor Newsletter Oh, Gold!!!! February 23, 2020