Gold’s Stealthy Return to Financial Dominance — Evening Brief – 04.04.25

Gold has experienced a remarkable 17% increase in value this year, reaching a price of more than $3,000 per ounce. This surge stands in stark contrast to the performance of major U.S. stock indices, which have declined between 5% and 8% over the same period. The divergence highlights gold’s appeal as a safe-haven asset during times of economic uncertainty.

But what’s driving this significant rise? The primary culprits are the ballooning U.S. budget deficit and persistent inflation, both of which have fueled investor demand for gold as a hedge against fiscal instability and eroding purchasing power.

The U.S. federal budget deficit has reached unprecedented levels, exacerbating concerns about the nation’s fiscal health. This year alone, the deficit is projected to exceed 7% of GDP—approximately $2 trillion—making it one of the highest among major economies. Inflation, meanwhile, remains “sticky,” with rising costs putting pressure on the dollar’s value. Historically, gold thrives in such environments because it retains its worth when fiat currencies weaken and government spending spirals out of control.

For example, the federal fiscal year 2025, which began on October 1, 2024, has already seen significant deficit growth. In February 2025—President Trump’s first full month in office—the deficit surged by $308 billion. Over the first five months of the fiscal year (October 2024 to February 2025), the total deficit hit $1.1 trillion, equivalent to an annualized rate of $2.64 trillion. Even after adjusting for payment timing quirks, this marks an 18% increase over the same period in fiscal year 2024. Spending in February 2025 alone rose by $41 billion (+11%) compared to February 2024, driven by: $73 billion in cost-of-living adjustments for Social Security, Medicare, and Medicaid; $44 billion in interest payments on the national debt; and $83 billion for disaster relief and EPA grants.

Meanwhile, tax receipts grew by just $37 billion, far too little to offset the spending spree. This imbalance has heightened inflationary pressures, further boosting gold’s allure.

To understand the current situation, let’s look back. In 2001, after four consecutive years of budget surpluses (1998–2001), the U.S. national debt stood at a modest $5 trillion. Fast forward to today, and it has skyrocketed to $36.2 trillion—a sevenfold increase in just over two decades. Since 2020, the debt has grown by an average of more than $2 trillion annually, with $220 billion added each month. By the end of 2025, the national debt could hit $38 trillion.

This rapid escalation has pushed the debt-to-GDP ratio to alarming levels. In 2025, with the U.S. economy projected to be worth $27 trillion, the debt-to-GDP ratio could reach 140%. For perspective, countries with debt-to-GDP ratios above 150%, such as Venezuela, Japan, Greece, and Italy, have faced significant economic stagnation. The U.S. is not yet at that threshold, but its trajectory raises questions about long-term sustainability.

The U.S. boasts the highest annual budget deficit rate relative to GDP among established, wealthy OECD nations, consistently hovering between 6% and 7% in recent years. This year’s projected 7.4% deficit (if $2 trillion is added) nearly matches Brazil’s 7.5% and far exceeds the Eurozone, 3.4% of GDP, and Canada, 2.3% of GDP.

In contrast, countries like Denmark, Norway, Switzerland, Taiwan, and Singapore maintain budget surpluses, showcasing fiscal discipline that the U.S. has struggled to replicate. Over the past 24 years, both Republican and Democratic administrations have overseen persistent overspending, with little political will to rein it in.

Cutting the deficit is easier said than done. Federal spending over the first five months of fiscal year 2025 rose by $200 billion (+7%) compared to the prior year. Reducing these expenditures risks political backlash, while raising taxes to close the gap faces similar resistance. This deadlock perpetuates the deficit cycle, amplifying economic uncertainty.

Gold’s current rally mirrors past periods of fiscal strain. Between 2001 and 2011, as the U.S. grappled with financial crises and rising deficits, gold prices soared from $260 to $1,500 per ounce—a 477% increase. Today’s climb to over $3,000 reflects similar dynamics: escalating debt, inflation, and a lack of confidence in traditional fiscal management.