Gold? I thought you'd never ask.
Actually, that's not true. I've been asked about it over and over (and over) on almost every media platform almost daily during the last fortnight.
The price is roaring. The photos of people lining up at CBD gold dealers are in the papers, and on the news.
Gold is having its (glistering) time in the sun.
And when I say time in the sun, I'm not kidding.
The price of the shiny yellow stuff is up 52% so far in 2025, beating every single asset class – most by a hefty margin.
And the gold bugs are celebrating, lauding their own foresight.
Luck? Skill? Circumstance? We'll get to that.
But it's not just the goldbugs.
For some confluence of reasons – likely a combination of the strong price rise, FOMO, and the historical and cultural popularity of the metal – people have been piling in, even as the price continues to rise.
But is that… wise?
I mean, sometimes price increases suggest that the underlying fundamentals of an investment are improving. Amazon (I own shares) is a great example of a company whose sales and profits have skyrocketed over the last three decades, and the share price has reflected that fact.
Other times, a rising price says more about the investors and investor sentiment than those fundamentals. The easy example is the 1999 dot.com boom, where prices lost all relationship to the businesses themselves, as investors and speculators just wanted in on the party… to their subsequent chagrin.
Where does that leave gold?
Well, there's a bit of both of the above at play, I think.
The hardest part of trying to evaluate gold isn't understanding the respective rationale of the bulls (those who expect it to go higher) and the bears (who think it'll fall).
No, the hardest part is trying to work out a reasonable price. See, for most other assets, you can use cashflows to make a rough assessment of value. For shares, that's profits (or dividends). For property, rent.
It's reasonable to make a case for why gold might be worth more (or less) today than it was in the past.
But how much more… or less?
And how much is gold objectively worth? 'More' or 'less' might be directionally right, but is $2,000 the right price? $5,000? $10,000?
That's far, far harder.
And maybe harder, still, when prices move quickly. See, in those circumstances, it's likely that sentiment is far more dominant than those underlying fundamentals, even if the fundamentals are correct.
To illustrate that point, let's go back to the dot.com example. It turns out that, 25 years later, we can say almost every single dot.com business model ended up being subsequently successful.
But paying too much, and being too early (the 'sentiment' I mentioned, above) turned decent business ideas into terrible investments.
In short: You can be right about the facts, but still get the investment wrong.
Which is important, when we consider gold.
See, there are some very reasonable narratives being discussed as to why investors may want to own gold.
US debt continues to grow. That could become more problematic.
US (and global) inflation may continue to be higher than we'd like.
Governments may continue to 'print money'.
In any or all of those circumstances, something whose volume increases only slowly (the amount of gold in the world increases by a small percentage, annually) should increase in value.
It may not, of course, but for the sake of argument, let's say it does.
And it's also possible that if enough people are worried about those risks, the increase in demand for that fixed quantity could push prices higher again, as demand outstrips supply.
And that could be either a temporary or permanent phenomenon.
Still… it's 'up', right?
The problem is that even if you're right that prices should be higher, that doesn't tell you by how much.
And, particularly in this case, it doesn't tell you how much is too much.
Why do I say 'particularly in this case'?
Well, as I said above, the price is up 52% this year.
Which is, objectively, well above the impact of any of those issues you might cite (short of, perhaps, a complete collapse of the US economy. But if that happens, who's buying your gold?)
So am I saying gold is too expensive? No. I'm not saying that, because just as there's no way to objectively assess the fundamental value of gold today, there was no way to do it on January 1, either.
Maybe it was cheap then, and fairly priced, now?
Maybe it was fairly priced, then, and expensive now?
Maybe it was cheap then, and is still cheap, now?
Or expensive then and now?
I think it's reasonable to suggest that if the growth in money printing exceeds the growth in new gold being mined, the price should increase, over time.
But that's a mile away from '… and the current price therefore is – or isn't – reasonable'.
For those more familiar with shares, here's two scenarios:
Company A is growing earnings per share (EPS) at 20% per year, is likely to keep doing so for a decade, and the share price has increased 52%, taking the price/earnings ratio from 8 times to 12 times.
I'd say that was stupidly cheap in the first place, and likely still very cheap.
Meanwhile, Company B is growing EPS at 3% per year, and faces some economic and competitive uncertainty. Meanwhile the share price is up 52%, taking the P/E from 30 to 45 times.
That looks to me like a company that was already overpriced, and that has simply become even more overpriced.
Now consider those two scenarios, but without any information as to the level of profits, or the historical or future growth.
How would you know whether either was undervalued, fairly valued, or overvalued?
Objectively… you couldn't.
And that's always the challenge with gold.
It's just… more consequential after big price movements!
A final warning: be careful of confirmation bias. There are investors – in all walks of life, not just gold bugs – who see outcomes as justifications of their views.
"The US is printing money… that's why gold is up 52%" is straight out confirmation bias.
Maybe that's why people are buying. But maybe it's not. And even if it is, does it justify a 52% increase? Why not 20%? Or 300%?
If they're honest with themselves, they'll realise it's just confirmation bias.
I've seen it on social media. Why are people lining up to buy gold?
Some people are convinced that everyone in the line in Sydney's Martin Place are reacting to, well, insert reason here.
Thing is, the reason they tend to give is the view they already held, themselves.
How about that, huh?
Okay, but should you buy gold?
I have no idea. It would be disingenuous (and/or dishonest or wilfully blind) for me to say 'you can't objectively value gold' then tell you that today's price is either too high, too low, or just right.
I think I can objectively say that the size of the movement over the past 12 months is disconnected, in my opinion, from any underlying fundamental changes in the economy that might be used to justify such a move.
Yes, some money has been printed. Yes, the US debt is getting worse. But 52% more money? No. Is the debt 52% worse? No.
Is it possible that the move represents the fact we've crossed some sort of economic tipping point? Yes. That would be the strongest justification for the large increase.
As I said, there's a chance that gold was simply too cheap, and this year's move is just a 'catch up', like Company A in our example, above.
But when people are lining up in Martin Place in Sydney, I think there's a decent chance that sentiment, not those underlying factors, are at least a decent part of the increase.
Remember, too, that sentiment shifts can persist for a long time. They can also change, swiftly.
I don't own any gold. I never have. But I can tell you that if I was going to buy, it wouldn't be when people are spending their lunch hours waiting to get through the front door of the gold bullion seller in the city.
(Warning: Nerd alert for what follows.)
Oh, and by the way, 'glisters', in the headline at the top, isn't an error, or a spelling mistake. As befits a company named after a Shakespearean character – the 'motley fool' was the Shakespearean court jester – we're keeping faith with the original word, and spelling spelling, as chosen by The Bard in The Merchant of Venice. 'Glistens' and 'Glitters' are modern corruptions (or, more generously, derivations) of the Shakespearean original.
He did also popularise (and perhaps invent) the phrase 'heart of gold'.
So… all's well that ends well (another of his), I guess.
Fool on!
