The Role of Gold When Trust in the Dollar Breaks Down

A New Kind of Signal from an Old Store of Value

I often drive with the radio tuned to the local classic rock station. Lately, I’ve noticed one ad repeating more than usual. A local jeweler is urging people to rummage through their drawers and bring in gold jewelry to sell, claiming they could walk out a few thousand dollars richer.

Chances are, the store knows something the average person doesn’t. They expect gold prices to keep rising. This isn’t just opportunism. It’s a sign of something deeper: confidence in the financial system is fraying. And while the headlines may focus on tariffs and political maneuvering, investors have quietly been preparing for a larger shift.

Remember the gold bar frenzy at Costco? That started well before Trump returned to the political spotlight. Multiple forces are in play here, and while tariffs are accelerating the trend, they are not the root cause. Investors are moving to protect their wealth, and they’re doing it in gold.

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When the Foundations Shake, You Look for Bedrock

The U.S. dollar has long been the cornerstone of global finance. But as tariffs escalate, deficits balloon, and political dysfunction spreads, a quiet shift is underway. Gold is quietly screaming. It’s hitting new all-time highs, not because it has changed, but because confidence in everything else is breaking down. Buffett may dismiss gold as unproductive, but the market tells a different story. So what’s really going on, and what does it mean for your portfolio today?

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Gold Isn’t Supposed to Do This, But It Is

Let’s start with the obvious. Gold is climbing even as real interest rates are positive, stocks are strong, and the economy hasn’t officially cracked. That’s not supposed to happen. Gold is supposed to shine when things fall apart, not when the data looks fine on the surface.

But that’s the point. The rise in gold isn’t about inflation. It’s about trust. Investors aren’t hedging CPI. They’re hedging credibility: of the government, the dollar, and the broader financial system.

Central banks know it. BRICS nations are buying aggressively. This isn’t a trade. It’s long-term positioning by institutions that no longer assume U.S. fiscal responsibility is a given.

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Buffett's Blind Spot: No Intrinsic Value, or Does It?

Buffett once said gold just “sits there” and produces nothing. He’s right, on paper. But that argument depends on a stable system. Gold’s job isn’t to be productive. Its job is to exist outside the system.

There’s no earnings report. No central banker. No board of directors. No counterparty risk. That’s the point. In a world where the system itself feels shakier, gold’s lack of yield becomes its virtue.

If you believe the dollar is the cleanest shirt in a dirty laundry basket, you don’t need gold. If you believe the basket is about to catch fire, you do.

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Sound Money Never Went Away, It Just Took a Back Seat

Gold has served as money for over 5,000 years. It backed the Lydians. It financed the Romans. It stabilized trade routes across Asia, Africa, and Europe. In more modern history, it underpinned the British pound and the U.S. dollar through the gold standard and the Bretton Woods system.

Even after Nixon ended convertibility in 1971, gold didn’t vanish. It just waited. Families in Argentina, Venezuela, Zimbabwe, and Russia didn’t turn to gold because of nostalgia. They turned to it because they had no other choice. When systems fail, people seek stability. Gold is the fallback when everything else burns down.

Today, we’re seeing a soft return. Not to gold-backed currency, but to gold-backed trust. Central banks are buying it quietly. Investors are adding it as a hedge. No one’s ringing bells, but the message is clear. Gold still matters.

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The Dollar’s Hidden Vulnerability: Currency Debasement and the Illusion of Stability

Gold’s resurgence isn’t just about politics. It’s also about math. Over the past two decades, the U.S. money supply (M2) has surged, especially during times of crisis. In 2020 alone, more than 20 percent of all dollars in circulation were created in just a few months. That kind of expansion would be unthinkable for a currency that wasn’t the world’s reserve.

To understand the magnitude of this change, take a look at the two charts below showing the M1 and M2 money supply in the United States over the last several decades. The sharp vertical spikes are unmistakable and historically unprecedented.

Before we get to the charts, a quick clarification:

• M1 includes the most liquid forms of money: physical cash, checking accounts, and other forms of money that can be accessed immediately.

• M2 includes everything in M1, plus savings accounts, money market funds, and other near-money instruments. It’s a broader measure of the money supply that captures how much capital is circulating in the economy.

M1 Money Supply Over Time

M2 Money Supply Over Time

In 2020, during Covid, the printing presses were running round the clock.

The dollar’s privileged position allows the U.S. to print money, run twin deficits, and still maintain global demand for its assets. But that privilege isn’t guaranteed. It’s enforced by trust: trust in U.S. institutions, in global military power, and in stable governance. As those pillars start to crack, so does the foundation beneath the dollar.

Currency debasement isn’t always visible in CPI. It shows up in asset bubbles, in inequality, in unaffordable housing. And when people start questioning whether the dollar deserves its status, they instinctively reach for something the system can’t dilute: gold.

The risk isn’t that the dollar vanishes overnight. The risk is that global investors start assigning a risk premium to U.S. assets, something they’ve never had to do in a world where the dollar was assumed to be neutral.

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Trump’s Tariffs and the Return of Economic Nationalism

Trump’s proposal for a 10 percent universal tariff, and even steeper penalties for China, signals something deeper than trade policy. It marks the return of protectionism, fragmented supply chains, and a growing political risk premium on American assets.

This matters. Trade creates predictability. Predictability supports the dollar. Remove that scaffolding, and the dollar starts to wobble. And when the world gets nervous about dollar stability, gold is the first thing they reach for.

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Where Bitcoin Enters the Conversation

Gold has history. Bitcoin has momentum. One is physical and ancient. The other is digital and emerging. But both appeal for the same reasons: scarcity, decentralization, and freedom from monetary manipulation.

Bitcoin doesn’t have the centuries of trust gold has built. But it offers something new: portability, programmability, and a native role in the digital economy.

For now, gold is leading. But for many, Bitcoin is the co-heir to the safe-haven throne. Owning both isn’t ideological. It’s just smart capital preservation.

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So What’s Gold’s Role in a Portfolio Now?

Gold doesn’t pay you. But it protects what does. It won’t grow your wealth, but it can stop someone else from taking it.

It hedges currency risk, political instability, and systemic shocks. It zigzags when everything else falls in line. And in a portfolio built for long-term compounding, that’s not just helpful, it’s critical.

If you believe the next 10 years will look like the last 10, you probably don’t need gold. If you have any doubt, you probably do.

We’ve recently increased our allocation to gold and Bitcoin in one of our Founder's Club portfolios (Dynamic Core Hedge). Other portfolios designed to be resilient to economic disruption also maintain large gold allocations. For example, Harry Browne's Permanent Portfolio allocates 25 percent to gold. Ray Dalio's All Weather Portfolio includes 15 percent in commodities, often with a substantial share in gold and other hard assets.

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In a World of Paper Promises, Gold Is the Asset Without a Counterparty

You don’t need to be a gold bug. But you do need to listen when the market sends a message. Gold’s rise isn’t about inflation. It’s a vote of no confidence.

When investors start hedging the very currency their wealth is priced in, that’s your cue to pay attention.

Gold won’t replace your best ideas. But it might just give them room to breathe when the world gets chaotic.

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