The Fat Tail Daily service is devoted to one thing this week: the outlook for the gold sector.

On Monday we looked at how Donald Trump would use the US banking system to juice the markets with credit.

On Tuesday I showed you how the gold market is becoming the global alternative to holding US Treasury debt.

This will continue, odds on, while Trump remains in office. That goes out to 2029.

You can see that today via the rise in central bank holdings of gold here…

2022 was the lift off point for this trend.

I don’t see much to slow it down overall. The quarterly numbers will swing around, of course, but the trend is up.

On Wednesday we saw how demographics and government debt mean that more central bank/Treasury financing (“printing money”) looks like a slam dunk in the next 5 years.

In fact, a big surge could start within the next 18 months, according to banking expert Dr. Richard Werner.

He expects the US gold price to go to $10,000 per ounce by the end of this bull run.

This isn’t really that crazy when you consider the “refinancing wall” that looms over the global economy.

All these debts all over the place constantly issued need to be settled or rolled over at some point.

And that point keeps getting shorter.

The total US federal debt is around US$37 trillion.

One estimate puts 75% of this figure – US$28 trillion – needs to be refinanced between 2025 and 2029.

One gimmicky move the US can pull is to issue a lot of short term debt to the market. The trap: they have to keep rolling it over.

This debt will be refinanced at a higher rate, if rates stay elevated.

That’s just the USA.

Over in Japan they have a debt-to-GDP ratio of over 300%. Rates are rising there too.

All this is putting a huge drag on global capital markets

It would be less so if this debt was financing global infrastructure or investing in new technologies.

But so much US and international government spending is for health, social security, the military…and just interest on the debt already owed.

These are transfer payments, mostly. I call it Squandermania.

I first used that term in 2022 for an issue of Australian Small Cap Investigator – about a month before gold stocks bottomed out in Australia.

Where does that leave us?

We know government debt is unsustainable. We know today’s “fiat” money can be created at will.

Horse, meet water.

Asset prices are going to rise to reflect this. Fund manager Chris Judd writes in his monthly report…

“We believe the upshot for risk assets is becoming clearer: with deficits expanding and new buyers of U.S. government debt being mobilized, the risk of a fiscal-induced liquidity crunch is reducing.

The strong market rally in May reflects investors’ recognition that the era of performative austerity is over, replaced by a pragmatic embrace of deficit-driven growth and financial innovation. As Lyn Alden aptly puts it, ‘nothing stops this train’.”

Indeed.

This is, in part, why we have the current anomaly of gold rising when the share markets are too.

Gold was long considered a “chaos” hedge…

…and protection against market sell offs and financial crisis.

It can be that, for sure.

But for now, the markets are bidding on both, because it’s inherently protection against currency depreciation.

This is why bitcoin is surging toward new highs as well.

Back in 2022 and 2023, I took a substantial percentage allocation to bitcoin in my SMSF. It’s up about 400% since.

I’m not selling yet, or my gold positions.

Governments run on fiat money, and fiat money can be created endlessly.

Real assets cannot, because factors rooted in the real world are a constraint.

The whole picture?

The inflation demon is embedded in the system now.

On my desk at the office is a book called “When Money Dies”.

(Actually, I just remembered: Murray Dawes pinched it a few weeks ago.)

It’s about the Weimar hyperinflation in Central Europe after the First World War.

Who survived the chaos?

It sure wasn’t the bondholders, or retired civil servants on a government pension, that’s for sure. They got wiped out.

Of course, we’re not at the dramatic stage of collapse, either. But any large bond holder is likely feeling mighty nervous about what’s coming down the line.

They probably can’t all exit for the door, certainly at once. But they can hedge their risk via gold and bitcoin especially.

Higher prices for both look very likely over the medium term.

That’s why I say gold stocks are still good buying, even after a big rally in recent months.

Bull markets like this can run for years. Get started with two ideas here.

Best wishes,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

Murray’s Chart of the Day –
ASX 200

By Murray Dawes, Thursday, 12 June 2025

As far as the short, medium, and long term trends go, everything is now pointing up.

A remarkable 17% fall and recovery has just occurred in the ASX 200 over the last four months.

That means the daily RSI’s (Relative Strength Index) are looking stretched in overbought territory.

So it will take some serious buying pressure to cause a breakout to new all-time highs and an uptrend into blue sky.

The August 2021 high (first orange circle above) and subsequent price action is a great case study of what can happen in these scenarios.

There were three sharp rallies that topped out near the August 2021 high before prices fell sharply again (First three blue arrows).

Even if we are now in bull market conditions, odds are fairly high that we see a retracement from current levels in the short term.

If we don’t see any weakness and the market marches higher without stopping, that will be a serious hint that the rally may be just getting started.

The S&P 500 remains stuck around the sell zone of the recent correction. Until we see it bust above the February high, thus creating a new all-time high, I will remain wary of the current rally.

Positioning in Retirement Trader remains long. There is no hint of weakness, and we haven’t seen the confirmation of a return of selling pressure yet. But I suspect it’s not far off.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps