Gold’s Hype Cycle (You Are Here)

The Gold Hype Is Getting out of Hand

No one takes a back seat to our Jim Rickards as an advocate for gold in anyone’s investment portfolio… but even he says the current hype “has run far ahead of the reality.”

Maybe the hype is already wearing off if the spot price of the Midas metal is any indication. After spending most of the last three weeks over $2,900 an ounce, it’s down another $43 this morning to $2,873.

For starters, Jim says the impending “audit” of the U.S. government’s gold at Fort Knox, Kentucky is likely less than it’s cracked up to be — even if Donald Trump and Elon Musk show up in person.

“I’m certain that visit will be the mother of all photo-ops,” he says.

“Of course, Trump and Musk will not be conducting a real audit in the financial sense. They’ll just look around and show that the gold is actually there. This should lay to rest the rumors and ill-founded theories that the gold is somehow missing or has been shipped to JPMorgan. It hasn’t been.”

If nothing else, the flurry of interest in recent days has been good for a chuckle or two…

Then there’s the matter of the U.S. government “revaluing” the gold on its books.

As we’ve mentioned a couple of times this month, the Treasury’s gold stash is still valued officially at a mere $42.22 an ounce — a relic of the chaos that ensued when President Nixon cut the dollar’s last tie to gold in 1971.

“The U.S. has 8,133 metric tonnes of gold bullion in three locations — Fort Knox, West Point and the Denver Mint,” says Jim. “That gold has a current market value of $771 billion.”

What difference does that make?

“The Federal Reserve currently holds a gold certificate issued by the U.S. Treasury in 1934 in compensation for the transfer of gold bullion from the Fed to the Treasury on orders of Franklin Roosevelt,” Jim explains. “That certificate is valued on the Fed’s books at $42.22 per ounce.

“If the Treasury ordered the Fed to write up the value to market, that would add $760 billion to the Treasury’s general account, which could be used to finance the U.S. government without adding new debt.”

Which is fine as far as it goes. The problem is that this revaluation is only a one-shot deal. It doesn’t generate a recurring revenue stream for Uncle Sam.

“In principle,” says Jim, “you could repeat the process if gold went higher in the future but that's uncertain and not completely reliable like taxes, leases and tariffs.”

To address that lack of a recurring revenue stream, online rumor-mongers say the Trump administration is this close to adopting one or more Rube Goldberg schemes that Jim says are “nonsense.”

Jim summarizes the rumors like this: “The U.S. could sell gold and use the proceeds to buy foreign government bonds that ostensibly produce higher yields than U.S. Treasuries. An alternative is to issue Treasury bonds backed by gold that would (in theory) carry a zero interest rate because they are ‘inflation proof.’ This creates an arbitrage between higher-yielding foreign government debt and supposedly zero-interest U.S. Treasury debt that produces income for the Treasury.”

Jim says there are several problems with these schemes…

• The government already has inflation-adjusted Treasuries. Maybe you’ve heard of them — TIPS or Treasury inflation-protected securities. “An inflation-proof gold-backed bond is therefore redundant”

• While gold helps preserve your purchasing power over time, the gold price isn’t closely correlated with the inflation rate. “In the past 2½ years, gold has gone up 80% and cumulative inflation has been around 10%,” says Jim. Under those circumstances, “indexing Treasury bonds to gold prices would have resulted in windfalls for investors and a huge loss for the Treasury”

• Finally, what’s the point of monetizing a gold reserve and using the proceeds to buy foreign government bonds? “The Fed could just buy them with printed money and the Treasury could just buy them with borrowed money.”

Jim’s bottom line: “I recommend gold as an investment asset and own it myself.

“It’s just not the case that the Treasury has to mess around in gold, bond and currency markets to achieve some opaque goal that can be achieved directly just by leaving the gold in Fort Knox and issuing TIPS.”

There you go. Sorry if we took you into the weeds today, but we’ve had inquiries from readers eager to hear Jim’s take on gold revaluation — and we’re happy to provide a needed corrective to the online hype.

Crosscurrents

It’s a day of many crosscurrents affecting markets — tariffs, economic numbers and of course Nvidia’s earnings.

After we hit “send” on yesterday’s edition, the stock market’s morning gains evaporated. And while too often the financial media reach for “reasons” behind every jot and tittle in the indexes… it’s clear in this instance that the decline began moments after Donald Trump began musing to reporters about a 25% tariff on imports from Europe.

That was just chatter, though. This morning Trump confirmed he’s going through with plans for 25% tariffs on imports from Canada and Mexico, effective next Tuesday. In addition, he’s slapping another 10% tariff on Chinese imports — on top of the 10% tariff imposed earlier this month.

[Editor’s note: This development affirms Jim Rickards’ forecast that Trump is just getting started with a new trade war.

If you knew how to play it just right, the trade war during Trump’s first term could have handed you a 1,372% return in only eight weeks.

This time, Jim says the stakes are even higher — as he explains in this urgent message from Pentagon City.]

By and large, Mr. Market is taking this new development in stride: At last check the Dow is up nearly 1% while the Nasdaq is down less than a half percent. The S&P is splitting the difference — up a smidge to 5,962, squarely in the middle of its trading range going back to Election Day.

We touched on gold’s swoon earlier. Silver’s also getting smacked — down 46 cents to $31.40. The HUI index of mining stocks sits at 314, a four-week low.

But crude is perking up after the Energy Department released its weekly inventory numbers. A barrel of West Texas Intermediate is up a little over 2%, back above $70.

Crypto continues sucking wind — Bitcoin barely over $85,000, another low last seen the week after Election Day.

The day’s economic numbers are a mixed bag — challenging conventional wisdom about an impending slowdown in the economy.

To be sure, first-time unemployment claims in the week gone by jumped to 242,000, the highest reading since mid-December.

CNN was quick to say the number suggests “that cracks may be forming in America’s long-solid labor market” — but one week rarely tells the whole story. The four-week average is still tame compared with much of last summer and fall.

Elsewhere, orders for durable goods — anything built to last three years or longer — surprised big to the upside — rising 3.1% from December to January.

And that number wasn’t skewed too much by orders for aircraft and military hardware — which are notoriously noisy from month to month. If you exclude those two categories, orders for “core capital goods” jumped a firm 0.8%, way beyond the expectations of Wall Street economists for a 0.5% rise.

As for NVDA…

What Now, NVDA?

The reaction to Nvidia’s numbers is disappointment. Not extreme disappointment, but disappointment nonetheless.

At last check Nvidia is down 3.5% on the day. The headline figures were splendid — sales leaped 78% year over year — but profit margins are getting squeezed by high costs.

CEO Jensen Huang said all the right things about the arrival of the upstart Chinese AI engine DeepSeek: Contrary to initial impressions, DeepSeek has “ignited global enthusiasm” that will result in more demand for computing resources that his company will be delighted to meet.

Perhaps the one thing that went *clank* during the conference call was the answer to a question about the potential impact of Trump tariffs: Chief Financial Officer Colette Kress gave a tepid reply about how the firm will comply with all export controls and tariffs — rather than a firm promise to raise prices to offset the tariffs.

So what does it mean for NVDA during the remaining 10 months of 2025?

In our sister e-letter Truth & Trends, Paradigm trading pro Enrique Abeyta points out that Nvidia’s share price has been flat since last June.

Yes, there’s been a lot of volatility along the way — in fact, NVDA lost $980 billion in market cap during January, very nearly fulfilling Enrique’s forecast of a $1 trillion drop sometime this year.

But all told, it’s a very normal period of “consolidation” after a furious run-up starting in early 2023. Some investors are taking profits; others are moving in to take their place.

Looking ahead, “If the company can continue to meet and beat numbers, then I think the stock will be just fine,” Enrique writes. “At some point, the stock price will start grinding higher again to reflect the accrued earnings. It is unlikely to go up as much as before because the company is neither beating numbers by as much nor growing as much.”

Longer term, Enrique remains concerned that Silicon Valley’s massive buildout in AI hardware has gotten ahead of itself — and the industry will shift its focus to software. Should that happen, “you will see a reduction in spending on NVDA chips.”

Mailbag: Chinese Stocks

As promised yesterday, we’re opening a voluminous mailbag of replies to this question: “Would you consider investing in Chinese stocks despite the prevailing negative sentiment, or do you believe the risks outweigh the potential rewards?”

One reader examines the question strictly from a risk-reward viewpoint and concludes: “There are too many major issues still looming over China's economy to even consider investing in China stocks and business.”

The bulk of the replies, however, wrestled with a moral component…

“Why would you support our adversaries by investing in their stocks?” writes a reader.

“Does the lure of possible profits justify aiding and abetting our enemies? Shame on you for even suggesting that.”

“Absolutely not!” says another. “China, the CCP, is deceitful, underhanded and ideological in their commitment to destroy and take over America by any means.

“Given their requirements and demands on Chinese companies, any support of a Chinese company is aiding and abetting the enemy, either presently or eventually. It’s not a maybe, it’s a given.

“I will not knowingly be a party (or an investor) to any company, organization or entity that is affiliated with China or beholden to the CCP — willingly or unwittingly.

“The modest amount of money that I could make from such investments pales in comparison to my loyalty and love of this country.”

On the flip side, “I have enjoyed the profits from the investments that we have made in Alibaba (BABA),” a reader writes — “so I don’t have any problem profiting from any stock no matter what country it’s coming from.”

(Perhaps that reader belongs to Zach Scheidt’s Income Alliance, which has booked a couple of gains on BABA this month.)

Says another: “While not a MAGA, my personal views tend to lean more toward the Republican philosophies — I have no problem investing in Chinese stocks.

“I'm not convinced that everything that is needed or wanted can or should be created, manufactured and consumed in the U.S.

“My viewpoint when investing (minor investing as it may be) is to make money. Sometimes that means investing in things that I don't agree with, if those are the things that are making money at the moment.

“Why would I want to miss out on making my portfolio better, just to make a point that I don't agree with their viewpoint?”

Chinese Stocks: The View From Here

This question is not new to your editor. In fact, I’ve been wrestling with it since at least 2021.

In the gone-but-not-forgotten trading service I ran with Alan Knuckman, The Profit Wire, we got grief now and then for recommending call options on the U.S.-traded shares of Chinese companies.

The problem I pointed out is that if you start screening recommendations for one ethical objection — like China — you have to start screening for others. By the end of the process, there might be nothing to invest in at all!

Over time, we generated 100% gains on a scandal-scarred bank (Wells Fargo)... a miner with a checkered environmental record (Freeport-McMoRan)... and a maker of the COVID shots (Pfizer).

“With almost every recommendation,” I wrote in late 2021, “someone could object to something and accuse us of enabling villainous activity.”

And so we chose not to screen for such things — following the research and the data wherever they led us.

Now and then over the years, I’ve cited the words of the late Harry Browne, a pioneer of the investment newsletter biz.

“Maximizing profits and conforming to social policies are separate endeavors,” Browne wrote in 1995. “You can cater to one endeavor only at the expense of the other.

“The stock exchange isn’t a pulpit. If you want to promote a particular environmental policy, political philosophy or other personal enthusiasm, do it with the profits you make from hardheaded investing."

And if Browne’s words don’t ring true for you… and if a particular newsletter or trading service recommends something you find objectionable… well, there’s always a new recommendation coming next week or next month.

Best regards,

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets