Treasuries have been classed as a Tier 1 asset by the Bank for International Settlements in the form of Sovereign debt for decades. Who better to underwrite the guarantee than the country whose debt you are purchasing, and they don’t come more solid than the US with its world reserve currency and largest economy. US Treasury bonds have been regarded as the safest and arguably the most liquid of assets for nations to invest on a guaranteed percentage return.
Treasuries have a far and wide-ranging use – they aren’t just buying debt, they are recirculated back into the system and used as collateral by institutions such as insurance and pension funds to hedge what has been classed for many years as a “risk-free” asset.
Historically, China and Japan were the two largest holders of US treasuries but this has changed in the last few years. The UK, seemingly unaware of the problems relating to its own and pressure on its own bond market, has overtaken China in holdings of US debt. Countries in the East, fearing sanctions and reacting to tariffs, have started to shun US debt and have turned to an alternative.
As Good as Gold
Following the great financial collapse in 2008, interest rates have been below 1%, and for almost 15 years, the world has been able to finance business on cheap money. This all changed following the lockdowns of 2020, and the macro horizon adjusted, resulting in QE programs creating persistent inflation and global debt levels skyrocketing in high-interest-rate environments.
Last week, I noticed a chart that confirmed several theories around the well-documented central bank buying spree of recent years. Moreso, however, it paints a worrying picture of the problems the world is facing as the debt crisis deepens, but critically also points the investor in the direction on where to put their money.
The chart below shows that Gold has now overtaken US Treasuries as the preferred global Central Bank reserves for the first time since 1996. 
From around 2020 where the aforementioned QE really began to gather pace, the chart shows the US debt held in foreign reserves has started to tick down and Gold up – much more aggressively in the last two years. More worrying for the US is it reflects a worldwide loss of faith in the dollar.
Considering the chart above, should we revert to levels of the 90s (which have many similarities today of high interest rates and sticky inflation) this chart with its technically rounded bottom only points powerfully higher.
When viewing the chart below showing Gold’s large Cup and Handle Pattern broken through last year, it bears a lot of parallels to the chart above. If we place a representation of where we are in relation to the Treasury/Gold chart it would suggest we have a lot more central bank buying to come just to revert back to the mean.
It hasn’t been a secret that central banks have been net buyers of Gold on a scale not ever seen before in the last few years. Big money doesn’t often get it wrong, and big money has been buying physical Gold as illustrated below.
Forecasting Gold’s Path Higher
To get an idea of what this means for Gold and the projections into the future, we need to compare today’s price action with the two most prevalent bull runs where inflation and confused monetary policy caused the price of Gold to significantly increase. These occurred in the late 1970s and the mid-2000s as shown in the charts below. We can use the percentage increases and timeframe of these to gauge what the price of Gold could look like in the future.
The bull run in Gold above was a 780% increase in the price of Gold within four years. This was on the backdrop of rising inflation. The chart below shows the second historic bull run in Gold. Although the chart bottoms from the turn of the century, it really starts to accelerate during the great financial collapse from 2008.
The percentage increase in Gold over 11 years was 635%
Present-Day Gold and the Future Price Targets
If we were to take a look at the charts, and use the baseline of $2,000/oz which Gold based around and eventually broke out from and use the same metrics in the previous bull runs, this puts Gold’s price at between $14,700 – $17,600/oz when the run ends as potential targets. Far fetched? On the face of it, yes but in reality there are significant reasons that these targets could become reality.
Whilst it’s a comparison that I would never make an argument for directly, but Bitcoin went from nothing to over $100,000 in no time at all, with forecasts of $1m out there. No one seems to shudder at that.
Don’t forget Gold used to be fixed at $35/oz. People laughed during this time at forecasts of $100/oz. Did anybody really believe it could be 9900% higher in price today? Your one oz of Gold is still one oz, but the levels of inflation and currency debasement means the purchasing power of your fiat currency is at the mercy of worldwide governments that want and need inflation. Gold has been inflation insurance and a protector of wealth for centuries. This isn’t about to change overnight.
History doesn’t always repeat but it does rhyme. Markets and trends are cyclical. The bull runs in Gold outlined above and the fundamental reasons for them do not compare with today’s conditions which sit massively in favour of the yellow metal.
Firstly in comparison to yesteryears, leverage in the system is a lot higher than the previous two cases above as are the derivative markets. A run on Gold where institutions demand physical delivery could easily break the COMEX which is set up as a derivatives market, and not for physical delivery. The LBMA is in a similar position when more than a year’s worth of Gold produced through mines is traded each day in London, there is nowhere near enough Gold to back the paper variant.
Secondly, a Gold revaluation event has gained more traction recently due to the out of control debt levels as a solution to refinance government debt. A revaluation of Gold is a debasement of currency otherwise known as inflation.
We are in a macro environment where all the stars are aligning for a commodities bull market for a number of years to come. Mass currency debasement via QE, levels of unsustainable debt to GDP ratios across the globe, lowering of interest rates all point to a thriving hard asset environment.
Gold’s price in fiat currency is set to increase substantially over the next few years. Now the world is almost compliant since the BIS reclassified Gold under Basel as a Tier 1 asset in its physical form the question should be asked of why the big money is loading up on the yellow metal. The answer is simple, and Gold’s long-term chart shows this – it has acted as sound money and a hedge against debasement of fiat currency for years.
With the world debt at over $330 Tr dollars at the end of 2024 (10 X the U.S. Debt) and climbing, stock markets at record highs in the mania phase without the fundamentals to support it, the yellow metal has never looked so appealing.