The Rise of Gold: Who are the 'Goldbugs' and What's Driving the Surge?

Investors bullish on gold, sometimes derisively called "goldbugs," are often seen as believers in gold more than viewing it as a commodity. For decades, they were considered "oddballs predicting the demise of the dollar." However, gold prices have risen more than 50% this year, surpassing $4,000 an ounce, finally allowing these investors to crow. Frank Giustra, Pierre Lassonde, and Rob McEwen are among the most ardent gold proponents, having wagered their careers on the notion that "gold has more enduring value than fiat currencies." Their belief in gold’s ability to preserve value has not only helped them amass fortunes but also garnered them unprecedented attention in the present moment.

The Drivers Behind the Gold Price Surge

The key driver of the gold price surge is increased buying by central banks. Giustra, a key figure in the development of multiple mining companies, says the popularity of gold indicates that investors are only just beginning to realize this trend. "All the factors I’ve been predicting for years are finally in place," he says. "The global monetary system is reshaping itself, and gold will play a role in it."

Are Gold Advocates Overstating Their Case?

Although gold advocates have championed the precious metal for decades, their enthusiasm has often seemed "ill-timed." After gold prices peaked in 2011, they fell for several consecutive years while stock markets were surging. They only returned to the spotlight after the Covid pandemic reignited demand. Even with the current surge in gold prices, the "doomsday" predictions of gold’s biggest supporters still seem somewhat extreme. "If a U.S. government shutdown and geopolitical uncertainty are driving gold prices, why hasn’t that affected U.S. Treasuries or exchange rates? Why hasn’t that affected other markets? It can’t just affect gold, that doesn’t make sense," asks Craig Basinger, chief market strategist at Purpose Investments, which holds gold in its investment portfolio.

Expert Perspectives on the Future of Gold

Giustra has been one of gold’s staunchest supporters for 25 years. He believes that the debasement of fiat currencies and the accumulation of debt will eventually make gold a reserve asset that can rival the U.S. dollar. He has long described gold as the "ultimate currency." Today, with central banks and investors piling into gold, this once-fringe financial view is moving into the mainstream. Giustra’s Canadian counterparts, mining financiers Lassonde and McEwen, believe that “de-dollarization” is emerging amid high Western debt and the U.S.’s tightening of sanctions and tariffs, which will drive gold prices significantly higher. Giustra believes the gold bull market is “only one-third of the way through,” noting specifically that members of the “multiple central bank digital currency bridge” (mBridge) initiative are increasing their purchases – an initiative that allows institutions to exchange cross-border claims through digital currency settlement. "Asian central banks, especially China and India, are trying to avoid the risks of chaos in the Western system," Lassonde says. "They’re not only buying gold in record quantities, they’re keeping more of that gold in their own countries, instead of storing it in New York or London." Lassonde likens gold’s steady rise over the past 20 years, and the recent explosion in prices, to Ernest Hemingway’s description of bankruptcy: "Two stages, slowly at first, then suddenly." "The gold bull market has been going on for 25 years, and that’s the ‘slowly’ stage," says Lassonde, co-founder of Franco-Nevada. "We’re now in the ‘suddenly’ stage, and gold prices are expected to rise significantly in the coming months." McEwen, another industry veteran, believes that this rise in gold prices is not "a vindication of being right," but rather an "inevitable result." He predicted in 2017 that a "liquidity tsunami" would push gold prices above $5,000 an ounce. "The rise in gold prices was expected, because the global money supply has expanded, and the amount of debt is excessive," he says. "Fiat currencies are debasing, and now is the time to buy gold." However, McEwen, who founded Goldcorp and now heads a mining company of the same name, also says that after such a rapid rise, the market may experience a correction. "I anticipate there will be a gold mania in the future, where small exploration or development gold mining stocks should be allocated in the portfolio – they will far outperform the large gold mining companies."

Conclusion

In conclusion, the current surge in gold prices reflects a complex interplay of factors, including increased central bank buying, concerns about the stability of fiat currencies, and geopolitical uncertainties. While some analysts warn of a potential market correction, others believe that gold still has significant room to rise in the years ahead. It's important for investors to conduct their own research and seek professional advice before making any investment decisions.