The Case for Gold Today. Again


Image by Marco de Benedictis /

The Budapest Business Journal’s corporate finance columnist Les Nemethy last wrote about the case for gold in April 2021. Now he says he sees a need to return to the subject.

In April 2021, gold was in the price range of USD 1,700; as of December 10, 2022, it was approaching USD 1,800. You may consider this a less-than-stellar performance and the author to be in an incurable gold bug. Before jumping to these conclusions, consider the following:

(a) Relative to just about every other asset class, this is not a bad performance. Debt and equities are each down 20 or so percent over the same time horizon.

(b) When you consider that over the same time, the U.S. dollar has strengthened considerably, gold’s performance is even more remarkable. Measured in every non-dollar currency, gold’s performance has been strong.

(c) While in April 2021, I talked of underlying market forces possibly pushing up the value of gold, I was never brave (or foolish) enough to forecast when such a significant upward valuation in gold might occur. It seems that underlying market forces are even stronger today, which will be the subject of this article. Let me summarize the current case for gold in five points.

1. The War Against Inflation may Already be Lost

Inflation remains uncontrolled and real interest rates remain strongly negative. European Central Bank Chairwoman Christine Lagarde recently stated that even a recession wouldn’t be sufficient to cure inflation. In the United States, monetary tightening has had only a minimal effect on reducing inflation: The Consumer Price Index is down from a recent peak of 9.1% on June 22 to 8.2% in September.

Negative real interest rates remain rampant throughout the world. The loss of purchasing power exceeds the interest on savings. Holding bonds or savings accounts is illogical behavior unless one believes that inflation will come down relatively soon. As it becomes increasingly apparent that this is not the case, and negative real interest rates will remain for the foreseeable future, the trickle toward gold may become a stampede.

2. Central Banks are Accumulating Record Amounts of Gold

Alan Greenspan, former chairman of the U.S. Federal Reserve, once said: “I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counterparty signature.” Central banks’ accumulation of gold is a possible indication that they wish to hedge against a potential upcoming financial crisis and are less keen on the U.S. dollar as a reserve currency.

3. Bitcoin, Considered a Competitor for Gold, has Been Decimated

Bitcoin has, in a short time, collapsed from around USD 60,000 to about USD 17,000. Many bitcoin exchanges have been hacked or collapsed, while fraud allegations abound. Who in the world will consider holding their savings in bitcoin? Surprisingly, there remain a few die-hards. My own opinion is that bitcoin will never recover the level of confidence previously enjoyed and gold will take on a new luster. Gold may seem a little old-fashioned compared to cryptocurrencies, but it has a track record of several thousand years.

4. Geopolitical Tensions are Considerably Higher

Retired U.S. Marine General Jim Mattis, the former Secretary of Defense, recently stated to a gathering of 2,700 CEOs: “We are living in a period of stability compared to what is coming.” There are so many pressure points in the world today beyond Ukraine, from Taiwan to the Middle East. Russia’s President Vladimir Putin has not finished escalating. He has recently made statements about the likelihood of nuclear war increasing and that Russia has incorporated a pre-emptive atomic strike into its military strategy. The rise of China puts it on a potential collision course with the States. Gold is a natural refuge in times of geopolitical tension and war.

5. World Well-positioned for not just Recession, but Full-blown Financial Crisis

More than 50 emerging countries are facing the risk of a financial crisis, according to the UN. How will the United States service USD 32 trillion of debt at 5% when total tax revenues are USD 3 tln-4 tln? Given that high leverage equates to financial instability, and global leverage is off the charts, people are losing confidence in the Fed’s inflation narrative and the value of fiat currencies. Having at least a percentage of one’s wealth in gold seems to be an increasingly logical choice. There is no entirely safe haven in times of crisis, but while gold may drop when the bottom falls out of financial markets, it tends to fall less far and recover quicker.

This article should not be construed as financial advice. The above underlying market forces are at play, but no economist can predict when gold will make its move. Gold as a small percentage of one’s portfolio, whether for an individual or pension fund, seems to be an increasingly logical hedge.

As George Bernard Shaw once wrote: “You have to choose between trusting to the natural stability of gold and the [….] honesty and intelligence of the members of government. And with due respect to these, gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.”

Les Nemethy is CEO of Euro-Phoenix Financial Advisers Ltd. (, a Central European corporate finance firm. He is a former World Banker, author of Business Exit Planning (, and a previous president of the American Chamber of Commerce in Hungary.

This article was first published in the Budapest Business Journal print issue of December 16, 2022.

Only 10% of Hungarian Eat Enough Fruits, Vegetables Figures

Only 10% of Hungarian Eat Enough Fruits, Vegetables

NVB Orders Recount of Invalid Votes in Budapest Mayor Electi... Elections

NVB Orders Recount of Invalid Votes in Budapest Mayor Electi...

Home Rental Rates in Hungary Rise 10.5% in May Residential

Home Rental Rates in Hungary Rise 10.5% in May

Discover the Potential of Geothermal Energy at Budapest Geot... Conferences

Discover the Potential of Geothermal Energy at Budapest Geot...


Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.