Gold Shortages Trigger A Record Price Run

Exciting Times For Gold

Most of the time, investors are doing well when buying productive assets, like the S&P500. However, in 2024, a strange phenomenon occurred. Despite a very strong performance from the leading index, 25% up, it was beaten by gold, achieving a 25.5% growth in price.

This should in theory not happen, as gold is depending on who you ask, counter-party-risk-free money, or a “barbarous relic” without any practical use.

The early months of 2025 are setting the stage for further strength in gold prices, with its price up 11.5% since January 1^st, 2025.

Source: Google Finance

And price rising is not the only gold-related news. Sellers of gold coins and gold bars worldwide are experiencing shortages. Massive gold imports to the US are ongoing. Delivery for buyers of gold in London has to wait almost 2 months for delivery, triggering rumors that the vaults are empty.

And speaking of potentially empty vaults, both Elon Musk and President Donald Trump are questioning the gold inventory of the USA and calling for an urgent audit.

So what is really happening, and how can investors correctly react to the gold-related news?

A Brief Overview Of Gold

The Perfect Money?

Historically, gold has been one of the first currencies, and the material most consistently used as money throughout history. This is because it matches almost perfectly the ideal characteristic of something that can be used as a means of exchanging and storing value:

Precious thanks to its rarity, as well as aesthetic value (the first gold items were mostly ornamental or ceremonial, for the first kings).
It is very durable by not oxidizing, corroding, or rotting away over time. Most of the gold mined millennia ago is still in circulation today.
It is fungible, meaning that it can be divided almost infinitely, helping for small transactions.
It is small and dense enough to carry a lot of value with little weight or volume.
Hard to obtain: as gold is rare and its mining very energy intensive (historically requiring a lot of human labor, today a lot of fossil fuels), its total quantity is stable with only little new supply every year.
As it is not money issued by a specific country, it is free from geopolitical and economic risks associated with stocks, bonds, and paper money.

From Money To Reserve To Fiat

Due to its commonly agreed status as money, alongside slightly less rare (and valuable) silver, gold has been the backbone of the world’s economy.

Over time, gold progressively stopped being directly exchanged in the form of coins, and became the backing of the various forms of less precious metal coins and paper money issued by governments. This was a progressive transition, with all the initial paper money, backed 100% by gold, or the so-called “gold standard”.

The First World War and the following economic crisis forced many countries like the UK and France to exit the gold standard in order to finance the war. It became clear after WW2 that the “temporary exit” of the gold standard would actually be permanent.

The 1944 Bretton Wood agreement would see a gold-backed dollar become the international currency reserve instead of directly gold. Every $35 could be converted into one ounce of gold, but this option was reserved for other nations, not companies or individuals.

Source: Vaulted

This system was suspended in 1971 when the costs of the Vietnam War and France asking for the conversion of its dollar reserve into gold forced the hand of US President Richard Nixon. This ultimately vindicated the famous economist Keynes’ view of gold as a “barbarous relic” destined to be phased out in industrial economies.

Since then, the international reserve currency has been the dollar, with the gold present in the world’s central banks’ vault not directly linked to the value of the currency, but more of an “insurance” against crises. You can learn more about this history in “What was the ‘Gold Standard’ and Why was it Abandoned for FIAT?”.

Gold Today

Today, gold has no official monetary role. It has however a number of industrial roles besides its still popular use in jewelry.

For example, gold is used in electronics for its exceptional thermal and electrical conductivity, and resistance to corrosion. Gold nanowires are also popular options for experimental soft electrodes used in implantable medical devices, including neural implants.

A 2D layer of gold called goldene, with a similar structure to graphene but using gold atoms instead of carbon atoms, was first produced in 2024 and could present semiconductor or superconductor properties.

Gold is also considered by many as a hedge against currency crises, with the metal still very popular as a means of saving in many non-Western countries like Turkey, Argentina, India, and China.

This means that despite having no official role as a currency, the counterparty free-risk nature of gold still makes it a de-facto currency for most of the world population, especially in countries with a history of currency devaluation, runaway inflation, and government confiscation of assets.

Silver prices have been rising in tandem with gold, although it is yet to hit the highs of 2011.

Source: GoldPrice

To this is added an annual production of 3,300 tons, or a 1.3% increase of supply annually.

Source: Statista

The emergence of cryptocurrency, especially Bitcoin, has somewhat challenged this role of gold. Often described as “digital gold”, Bitcoin shares with physical gold many of the ideal characteristics of money (by design): fixed supply, fungible, no counterparty or jurisdiction risks, durable through the blockchain ledger.

Whether Bitcoin will turn into another reserve or replace gold is still unclear, and it will likely depend on how widespread the adoption of Bitcoin becomes.

Today, a total of a bit more than 244,000 tons of gold exist above the surface, or a little less than 1 ounce per person on the planet.

Trump Tariffs

A driver of the recent surge in gold imports in the US has been Trump’s tariffs, which could make the flow of physical gold less liquid and expensive in the near future.

For example, exports from Switzerland (a major gold refiner from raw ore to gold bars) into the USA have hit an absolute record in the past few months.

Source: JustDario

The LBMA (London Bullion Market Association), an over-the-counter (OTC) market comprising the London Gold Market and the London Silver Market has also experienced issues (its US equivalent is the COMEX). Deliveries now can take up to 8 weeks, despite insistence by the LBMA that physical gold stocks and liquidity of the London market “remain strong”.

“In the weeks since the U.S. election in early November, gold traders and financial institutions have moved 393 metric tonnes into the vaults of the Comex commodity exchange in New York, driving its inventory levels up nearly 75% to 926 tonnes.

Ernest Hoffman on Kitco

Growing Doubts And Concerns

While the LBMA blames logistical issues, this is failing to convince many investors and market observers, who are now wondering if the LBMA vaults contain gold at all, or if they are scrambling to find some alternative sources to keep up with a game of pretend.

Meanwhile, the location where the US gold is mostly stored, Fort Knox, is being investigated by the Trump administration.

We’re going into Fort Know to make sure the gold is there. (…) One of the things we want to look at, we hope everything is fine with Fort Knox.

If the gold isn’t there, we’re gonna be very upset.

President Trump

Even Elon Musk added to the topic, with a characteristic meme, not really adding to the confidence about Fort Knox’s situation:

Source: Elon Musk

To understand why there is so little trust in the status of gold reserves in both London and the USA, we need to look at the greater context.

The Build-Up

Factional Gold Reserves

So while some claim the tariffs are the reasons for the US imported as much gold as possible, Musk’s and Trump’s declarations indicate a wider question about gold reserves.

A key reason is the difference between the physical metal market and the financial markets for gold.

Most of the gold trading today does not involve the physical exchange of gold bars. Instead, it is the buying and selling of financial instruments developed by the LBMA and Comex to represent gold ownership. The same is true for silver markets.

In practice, this means that a lot more “paper gold” is exchanged than there is actual gold in the vaults. In that respect, this is a little like fractional reserve banking, where only a fraction of the cash stays in the bank, and most of the assets are based on trust in the financial systems.

No less than 6,000 tons of gold are traded in London every day, while the LBMA bullion bank reserve is only 100 tons. This means that over a year, 15,000x more gold is traded than physically present in the vault.

Can It break?

In theory, fractional gold is not a problem as most of the traders are not interested in actual gold ownership, but speculation around price fluctuations. However, every gold contract can be redeemed for physical gold on demand.

With paper markets much larger than the physical markets, it would take very little delivery to “break” the gold and silver market.

Regarding central bank vaults and national reserves, a long-standing practice has been to temporarily “lend” the gold to commercial banks (and metal exchanges like the Comex and LBMA). So the question raised by Trump is to check if the gold ever comes back from these loans.

Overall, the concern is that one single gold bar from a central bank might have been loaned and reattributed to many “paper owners” at the same time. This would both reduce the price (by creating fictional “paper gold bars”) and potentially cause a run on exchanges if they are unable to deliver. Hence why, 8 weeks delivery time At the LBMA makes everyone nervous.

Eastern Accumulation

Another phenomenon has been the consistent accumulation of precious metals by Eastern countries over the past decade, with China at the top, but also Russia, India, Indonesia, SE-Asia, etc.

China’s official gold reserves are “only” at 2,280 tons. But this number is hotly debated, as many elements let analysts believe it is a gross underestimation or an outright lie.

For example, Chinese gold mines never export their production. And gold flows into the Shanghai Gold Exchange (SGE) and sees the annual withdrawal of 1,500 to 2,000 tons annually.

Source: World Gold Council

While some of this gold makes its way into electronics or jewelry, it has long been suspected that Chinese bank purchases of physical gold ultimately end up in the PRC’s central bank vaults.

Considering the massive trade surplus of China, this ultimately means that a significant part of the surplus in the dollar is recycled into gold instead of US bonds. And maybe China’s gold stack is in the 10,000-20,000 tons.

It raises a seemingly far-fetched, but not impossible, risk: what if Asian banks and governments took deliveries of gold lent by Western central banks to the US and British gold exchange, steadily depleting the Western reserves over the past 15 years?

This gives another angle to see currency wars between the East and West, one where the East exchanged paper money for gold bars.

Source: MerckInvestments

Weaponization Of International Reserves

One last element of international context is the seizing of Russia’s international currency reserves in 2022, for a total of around $300B, following the beginning of the war in Ukraine.

This has put into question the wisdom of using US dollars as a reserve currency if your country is on less than good terms with the US. So nations like China and Iran, but also potentially many others like Turkey, India, Mexico, Indonesia, and others, have started to diversify their international assets.

This also puts in the spotlight the BRICS association, now including 11 countries and with others on a waiting list to join.

Source: Statista

The BRICS countries have been discussing reducing the use of the US dollar in their bilateral trade, something that has drawn the ire of Donald Trump:

“We are going to require a commitment from these seemingly hostile Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs.

There is no chance that BRICS will replace the U.S. Dollar in International Trade, or anywhere else, and any Country that tries should say hello to Tariffs, and goodbye to America!”

President Trump

It overall seems unlikely that the very different economies and geopolitical interests of the BRICS nations could establish an alternative currency like the Euro. However, they could be considering a settlement in gold, a neutral and apolitical reserve, for when one BRICS country accumulates too much of the other’s currency.

For example, Russia accumulates too many Indian rupees by selling its oil but not importing much from India and can then use that gold to balance its purchases from China.

Domestic Debt Concerns

Even if ignoring the international context, there are also mounting worries about America’s financial situation regarding debt and inflation.

Here, too, we can listen to Elon Musk and President Trump’s concern about an incoming bankruptcy of the country as a milestone in such concern becoming “mainstream”.

Musk said that US President Donald Trump inherited a USD 2 trillion trade deficit. He further warned that “America will go bankrupt” if it fails to bring the deficit under control.

Historically, when a country with paper “fiat” money goes bankrupt, financial assets are best protected in the form of physical assets like gold, artworks, land, etc.

When a chief adviser to the US president and also the richest man in the world warns of the potential bankruptcy of the country, it is maybe not so surprising that many investors, Americans and foreigners alike, are listening and diversifying their assets into gold.

The Future Of Gold

Fixing Trust In The LBMA & Fort Knox

In the short term, the alleviation of concerns regarding the LBMA vault and Fort Know reserves will be the most important factor in play for gold prices.

If the reserves are adequate and proven honest, this would go a long way in reducing the speculative action around gold prices.

However, if the audit failed or even was just canceled, this could potentially create a true historical panic.

US Debt Monetization Of Gold

In the medium term, what the US will do with its (full or partial) gold reserve is an important question for gold investors.

There have been discussions of re-evaluating US gold reserves, which are still accounted at the historical price of $42/ounce instead of the current almost $3,000/ounce.

If the official reserve is truthful, this would put the value of the 8,134 tons of gold in Fort Knox and the Federal Reserve to $860B.

While massive, this is actually not that much compared to the massive $1.8T of annual deficit the US government is running, and $36.5T of debt.

So, to solve the US debt crisis by monetizing this gold, US gold reserves would need to be revalued at a much higher price, with gold prices in the 5-digit price range. Which is, of course, the dream of every gold investor.

US Dollar’s Reserve Status

In the long term, the value of gold will likely be tied deeply to the reserve status of the US dollar.

If the dollar stays the main reserve currency and means of international trade, gold will stay the so-called barbarous relic, and its price stabilize.

If we enter a period with no country able to provide a reserve currency accepted by all, gold could be re-monetized, and a de-facto gold standard be recreated to stabilize the inevitable turmoil in a paper currency. Such a situation would create.

Conclusion

Overall, it is not yet clear what is happening with the gold market and if the recent explosive rise in price will last.

It is nevertheless likely that no matter what, gold is going to perform well as long as the issue of the US debt is not solved, and that geopolitical tensions are running high.

Investors should, therefore, consider allocating part of their portfolio to gold and/or crypto in order to get exposure to the sector and hedge the risks linked to inflation, currency devaluation, and overall turmoil in the global financial system.

Investing In Gold

Gold Trust ETF – SPDR Gold Trust

Gold trust ETFs are financial instruments trading on the financial market and holding physical gold for its investors.

SPDR owns 877 tons of gold, or as much gold reserve as major countries like India or Japan.

With a value of $75B, it is by far the most liquid gold ETF Trust, with very little difference between the price paid by an investor in GLD and gold spot price.

This can actually be a lower premium than actual physical gold an investor can take delivery of in physical form, like gold bars or gold coins.

The ETF’s size also means that it can afford very low management fees, with an expense ratio of only 0.40%.

So this is the closest investors can do to directly own gold without taking physical delivery. However, it does not provide any yield, as it is not an investment in productive companies’ stocks. It also does not provide any leverage against gold prices.

Gold Miner ETFs – VanEck Gold Miners ETF

If you believe that gold price will explode in price due to geopolitical or domestic crises, it could make sense to own gold producers digging more of it from the ground. The more valuable the product, the more profit the miners will make.

Because in such a crisis, gold miners might be exposed to their own geopolitical risks, like expropriation, it can be best for investors to diversify to the maximum their risk.

VanEck gold miner ETF is one of the largest gold ETFs focused on gold miners, with $14.3B of assets under management. It has a low net expense ratio of only 0.51%.

Its top 3 holdings are among the largest gold miners in the world: Newmont (NEM -4.64%), Agnico Eagle (AEM -1.5%), and Barrick Gold (GOLD -2.11%).

Source: VanEck

This is followed by two of the largest gold royalties gold companies, Franco Nevada (FNV -1.57%) and Wheaton Precious Metal (WPM -1.79%).

Royalties companies are financial companies providing non-dilutive investment to mining companies, in exchange for a percentage of future production on a mining site.

Altogether, GDX is a good way to get exposure to gold miners while favoring the largest companies in the industry.

Gold Miner Junior ETFs

VanEck Gold Miners ETF

If gold prices rise, markets will likely re-estimate the value of gold still in the ground at a premium.

While established large gold miners are overall safer, they are also generally priced accordingly. On the contrary, junior miners, a term used for mining companies that have yet to start production, are more speculative and risky.

This is because a lot can go wrong in the 10+ years between the start of a mining project and first production: environmental permitting can be refused, actual geology might prove less good than expected, inflation can cause construction costs to explode beyond expectation, more capital might need to be raised, diluting existing shareholders, etc.

However, if the gold prices keep rising while junior miners are building up their mines, this could prove very profitable.

Like most VanEck ETFs, net expenses fees are rather low at 0.52%.

Overall, the ETF’s holding of growth-focused smaller active gold miners means that despite its name, GDXJ is more a mid-way between a mature large gold miner ETF like GDX and an ETF fully dedicated to junior miners.

Newmont Corporation

Newmont Corporation (NEM -4.64%)

Newmont is the world’s largest gold miner, both as measured by market capitalization and production., especially since the acquisition of Newcrest in May 2023.

The Newcrest acquisition has added a lot of gold and copper reserves, mostly in the very safe jurisdictions of Canada and Australia. The company also estimated from the experience of previous mergers that it would create $500M of synergies.

Overall, Newmont is mostly active in the Americas and Australia. It has gold reserves of 134 Moz (million ounces) of gold, with another 170Moz in gold resources (likely to be found, but not yet detected).

Source: Newmont

Management estimates that production should stay stable until 2032 at least and has a long history of keeping mineral reserves up, thanks to exploration projects and new discoveries at existing mines.

In 2025, Newmont estimates it will cost it $1,620 to produce an ounce of gold, and calculated its yearly budget with a conservative $2,500/ounce of gold sold, and $80/barrel of oil (one of mining’s main variable costs).