As inflation rises and economies shift, the cracks in the foundation of fiat currency grow more visible. Assets like gold and digital currencies are no longer just alternatives; they’re becoming critical tools for wealth preservation. The American financier J.P. Morgan famously said, “Gold is money; everything else is credit.” This statement resonates more than ever as gold’s value surges. Gold hit around $2,700 per ounce recently, marking a historical high.
Over the last five years, the U.S. dollar lost 25% of its purchasing power, turning what once was worth a dollar into the equivalent of 75 cents. Meanwhile, the Euro hasn’t fared much better. In the past 25 years, it’s lost nearly 90% of its value against gold. Gold, however, tells a different story. For over a century, it has maintained purchasing power, securing the same amount of goods and services it did a hundred years ago. Imagine holding onto a gold from 1933. While currencies depreciate, gold still holds its worth, a quiet testament to its enduring stability.
However, despite its stability, gold has limitations in day-to-day trade due to its weight and difficulty moving it around. This is where Bitcoin steps in as a portable alternative. Bitcoin provides a secure and easily transferable asset, although it brings its own volatility and risks. BlackRock CEO Larry Fink even claimed that Bitcoin could one day rival the U.S. housing market, a bold testament to its potential as a significant asset.
Globally, new alliances are forming as countries seek alternatives to the dollar. The BRICS bloc, with 45% of the world’s population, aims to reduce dependence on the dollar. Out of 193 countries, 159 have joined a new BRICS settlement system. Notably, many of these countries face economic sanctions from the U.S., which has spurred them to explore alternatives.
In Asia, central banks from China to Saudi Arabia are quietly stockpiling gold, marking a strategic shift. China, in particular, has reduced its U.S. Treasury holdings, accumulating gold to decrease reliance on the dollar. Russia, under sanctions, has increased its gold reserves to over 32.5%, using it as an economic shield against currency volatility and sanctions.
For many, gold serves as an insurance policy against the devaluation of fiat currencies. Japan offers a stark example with its debt-to-GDP ratio at 255%, illustrating the pitfalls of Keynesian policies. Western countries are following similar paths. In the U.S., public debt has surged to $35.7 trillion, or 122% of GDP. Astonishingly, it took over 200 years for the U.S. to accumulate $12 trillion in debt, then just five years to double that figure. This debt growth, funded by constant money printing, could weaken the dollar’s value long term and push gold prices higher as countries inflate their way out of debt.
Across the Atlantic, the U.K. has reached a debt level of 100% of GDP, its highest since the 1960s. Unlike wartime spending, today’s debt reflects a structural imbalance between public spending and tax revenues. The IMF warns global debt will surpass $100 trillion this year, an unprecedented figure.
In the U.S., debt servicing alone costs $1.2 trillion annually, roughly 23% of all revenue from taxes, tariffs, and fees collected.
Gold’s unique properties make it vital across industries: it powers tech with conductivity, aids healthcare with disease detection and bacteria-resistant implants and enhances aerospace by stabilising temperatures and reflecting harmful rays.
Peter Schiff argues “that fiat currency’s inherent flaws will lead to an inevitable shift toward asset-backed money.”
But there’s a cautionary tale in today’s gold market. Did you know there are 131 paper gold ounces for every real ounce? If you’re investing, make sure it’s in physical gold, not ‘paper gold.
History shows fiat currencies tend to devalue. Gold is winning over fiat money due to its stability, global demand, historical value preservation and intrinsic industrial uses, making it a resilient store of wealth in volatile economic times. As Friedrich Hayek noted, “The gold standard has been destroyed chiefly because it was an obstacle to inflation.” If history is our guide, assets like gold, property, and stocks have consistently risen with inflation.
Awet Ghirmay, Head of Investment Research
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Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. The Financial Conduct Authority does not regulate most crypto assets or services. Bitcoin is a crypto asset. Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment and you are unlikely to be protected if something goes wrong.. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
