13 October 2025
Gold, Equities and the Endgame of a Trashed Currency
When money weakens, asset prices soar - at first at least. But the illusion of wealth soon gives way to the reality of devaluation. This is the story of how currencies collapse, why gold endures, and how you, dear readers as investors, might navigate the transition.
Money Printing
It is well explained here, offset 15'
1. The Dollar’s Fragile Supremacy
When a currency weakens, the first thing investors notice is that everything priced in it seems to rise. “Appears to”. Gold, oil, and shares all appear to surge in value. But this is largely an illusion. Their nominal price climbs because the measuring stick - the currency itself - is shrinking. You have to understand that the money in your pocket doesn’t go as far as it used to because there is more of it in circulation - more money chasing the same supply of goods => inflation. Real assets and notably gold are unchanged in value (in usefulness), it’s just that to buy them you need more and more of a collapsing currency.
So the early phase of a currency decline is seductive. It feels like a boom. Asset prices climb, optimism abounds, and governments convince themselves the problem is under control. In reality, it’s the first act of a slow-moving tragedy.
2. The Flight to Hard Assets
As faith in money falters, investors turn instinctively towards what is real and finite. Gold and silver rise first. Commodities follow. Real estate attracts capital too, because it is tangible and usable. These are the classic havens in times of monetary excess. Property owners can be well pleased. During the last great inflationary decade, from 1971 to 1980, gold outperformed equities by a factor of 10 - ten! This is the essence of the flight to hard assets: the search for value that cannot be printed.
Currency Erosion
3. Equities in Nominal Boom, Real Decline
Equities can appear to thrive in an inflationary world, but the reality is less kind. Companies raise prices to match inflation, but input costs rise even faster. Energy, labour, and debt all become more expensive. But watch out - profits shrink in real terms.The result is an inflationary bull market - one that looks spectacular on paper but quietly erodes purchasing power. The chart goes up, yet the investor “mysteriously” grows poorer.
4. Gold Miners and the Leverage Trap
Gold miners offer extreme leverage to gold’s price movements. When gold rises faster than mining costs, profits soar. But when inflation spreads into fuel, wages, and equipment, the advantage vanishes. Late-stage inflation often squeezes miners hardest - especially the smaller juniors. A big part of costs is energy so if oil dips then junior miners rise .This is why ETFs like VanEck Junior Gold Miners (GDXJ) swing so wildly: they are turbocharged plays on both gold and confidence.
Loss of Control - Dollar Devalues
5. The Loss of Control
Eventually, inflation becomes chaos. Bonds collapse as yields rise uncontrollably. Governments respond with price controls or capital restrictions. Markets lose faith in policy itself.This is the next phase - the loss of control - when gold ceases to be an investment and reverts to what it always was: money. Equities, once buoyed by cheap printed liquidity, deflate both nominally and in real terms. The public, sensing betrayal, retreats from all paper promises.
6. The Dollar’s Paradox
The dollar remains a special case. It is both the world’s problem and its refuge. When crises erupt, capital still runs to it - the “scramble for dollars". Yet this safety is temporary. If confidence in US fiscal discipline breaks, there will be no replacement large enough to absorb the shock.
The Great Reset
The next rotation will be into gold, commodities, and perhaps a few disciplined currencies such as the Swiss franc or Singapore dollar. Analysts are already calling this “the post-dollar rotation”.
7. Recap: The Phases of a Currency’s Decline
(1) First comes monetary expansion, when printing presses hum and markets cheer.
(2) Next, currency erosion, when inflation bites and investors seek shelter.
(3) Then, loss of control, when policy fails and faith collapses.
(4) Finally, the reset, when a new measure of value emerges.
Gold survives every reset because it is not anyone’s liability. Fiat currencies depend on promises ... and promises are the first casualty of panic.
8. Gold and Equities in the Endgame
In the early stages of devaluation, both gold and equities rise together. Later, gold continues upward while equities stagnate. Finally, as trust in paper disintegrates, gold becomes the numeraire ie the yardstick by which all else is measured. This is why serious investors still see gold as the foundation of wealth, a yard stick and they store of wealth, not a mere trade.
9. The Modern Parallel
Today’s conditions are eerily familiar: soaring deficits, massive liquidity, and record asset prices. Real yields wobble. The Fed’s balance sheet is swollen. Debt-to-GDP ratios have entered uncharted territory.It is the same old pattern, only on a global scale. The illusion of wealth persists, but the repricing of reality is already underway.
10. What could derail the trend?
Gold - at October 2025 - looks technically overbought in the short term but remains in a structural uptrend. The last great bull run in the 1970s only ended when two conditions appeared together: belief that the Fed had conquered inflation and real GDP growth running twice its long-term average. Neither condition applies today. If anything, industrial commodities like copper and oil hint at weakness, while the Fed’s recent rate cuts show tolerance for higher inflation. Trade frictions between the US and China reinforce a stagflationary backdrop – historically positive for gold.
11. The 1970s Playbook
Is history a guide? Some people think so.
From 1973 to 1983, gold rose fivefold while the S&P 500 gained just 50%. Four stagflationary episodes saw inflation peaking in 1970, 1974, 1980 and 1982. Gold typically rallied into recessions, dipped 19% after the first rate hike, then recovered within months. Bull runs broke only when GDP soared above 4-5% in post-recession booms – conditions absent today.
When to step in and out of gold?
12. Valuation Upside
1. Buy the dips - use technical measures RSI, ADX, Volume, moving averages, momentum
2. Watch miners' margins - use fundamentals spot - AISC
3. Get out when (more likely "if") gold's refuge value falls - use macro indicators: inflation mastered, growth returns, fiscal crisis over.
Miners' operating leverage
Gold-mining equities have operating leverage to the gold price. You can see that if you compare the share price of the ETF SGLN with the miners GDXJ and AUCP. Gold has risen ~30% in the last three months, these senior and junior miners ~60%.
When gold rises faster than miners' input costs, margins explode. Even using a conservative $3,900/oz gold price (spot < futures), gold-mining equities appear undervalued (sic) by around 60%. Shares today imply a $3,000 gold price - this is about 25% below spot - and developers could gain materially more as projects de-risk (ie gap between costs and price of gold widens further).
Under one blue-sky scenario of $17,000 gold within five years, valuations of miners could rise over 600%, with multiples expanding as the bull market strengthens.
Example:
All-in sustaining cost (AISC): $1,300–1,600 per oz
Cash cost: $1,000–1,200 per oz
Break-even: $1,400–1,500 per oz
When gold trades above $2,400 per oz, margins can double or triple, explaining the strong performance of ETFs such as GDXJ.
Input Costs
But if AISC begin to rise faster than gold in dollar terms, margins - and share prices - could tumble:
12. Closing Reflection
Gold remains the clearest long-term hedge against monetary excess, fiscal instability and rising geopolitical threats. The short-term pullbacks are buy-the-dip opportunities within a structural uptrend supported by policy, politics and history. The Miners have operating leverage and rise faster ... although beware if miners' costs start to inflate faster than the price of gold in dollar terms.
If a currency can be trashed, it can also be rebuilt. But rebuilding requires trust and this is something that cannot be printed or borrowed. Gold, indifferent to politics and policy, endures through each cycle of human "error". That is its unquestionable and unanswerable strength.
© 2025 Living in the Air - Essay adapted from discussions on global macroeconomics and the future of money.
Glossary
Nominal Price
The face value of a good or asset, expressed in current money terms and not adjusted for inflation. A rise in nominal price may simply reflect a fall in the currency’s purchasing power rather than a true increase in value.
Real Assets
Tangible things that have intrinsic worth because they are useful, such as property, commodities, and infrastructure - as opposed to financial claims or paper instruments. The value of real assets tends to hold up when currencies weaken - hence the illusion that they are going up in price... but no not at all: real assets are holding their value while the currency gets debased meaning you need more of it to buy the same quantity of real asset.
Hard Assets
A subset of real assets that are physically finite and durable: gold, silver, oil, and land. They act as stores of value during monetary instability.
Monetary Excess
A condition where the supply of money expands faster than the growth of goods and services, leading to inflation and speculation.
Bull Market
A sustained period of rising asset prices, often fuelled by optimism, liquidity, or loose monetary policy. Bull markets can exist in both nominal and inflation-adjusted terms.
Purchasing Power
The amount of goods and services that one unit of currency can buy. It declines as prices rise — hence inflation erodes purchasing power.
Price Controls
Government-imposed limits on the prices of goods or services, used to curb inflation. Historically they distort supply and lead to shortages or black markets.
Capital Restrictions
Regulations that limit the movement of money across borders - for example, taxes on foreign exchange or limits on withdrawing funds. Capital restrictions are usually introduced in times of financial crisis to protect a currency.... beware!
Policy (Fed Policy)
The set of actions taken by the US Federal Reserve to influence economic activity on employment and inflation. These are mainly through setting interest rates, controlling the money supply, and managing the size of its balance sheet. Interest rates are very important to a stable economic system, including the government's ability to pay the interest on its debt.
Nominal and Real Terms
“Nominal” refers to figures measured in current prices; “real” means adjusted for inflation. For example, wages may rise 5 % nominally but fall in real terms if inflation is higher.
Paper Promises
A figurative expression for financial assets - shares, bonds, and bank deposits - that depend on the issuer’s solvency and trustworthiness, unlike gold or land which have intrinsic value.
Fiscal Discipline
The ability of a government to control its spending and borrowing. Weak fiscal discipline - large, persistent deficits - undermines confidence in a currency.
Numeraire
An economic term meaning the standard by which value is measured. In stable times the numeraire is the national currency; in crises, gold often resumes that role.
Real Yields
The return on bonds after adjusting for inflation. When real yields fall or turn negative, non-yielding assets like gold become more attractive.
Fed’s Balance Sheet
A record of all assets and liabilities held by the Federal Reserve. It expands when the Fed buys securities or injects liquidity into the banking system - a process known as quantitative easing.
Debt-to-GDP Ratios
A measure of a country’s indebtedness, comparing total government debt to annual national output. High ratios signal that debt growth is outpacing economic growth, raising default and inflation risks.
