The Price of Gold and Global Debt

Planet Earth, we have a problem. Actually, we have many problems (the climate crisis, the nuclear threat, the impact of artificial intelligence, etc.), but the one most relevant to the price of gold—which I’m asked about every week—is global debt. 

The problem with global debt is that we have a ton of it, more than ever before. In 2001, it was $60 trillion. In 2020 it stood at $226 trillion. As of early 2026, total global debt (the money owed by all the world’s governments, companies, and households) has mushroomed to about $350 trillion. Corporations owe about $160 trillion of that, governments around $110 trillion, and households $80 trillion.

The world economy (the sum total of every country’s GDP), meanwhile, stands at about $108 trillion per year. Which means global debt is more than three times the size of global GDP—an all-time high.

Imagine you had annual income of $110,000 and were carrying a $340,000 loan. Manageable when interest rates are low, maybe, but challenging if rates rise and devastating if they keep rising, as they have been recently . Add nine zeroes to those numbers and things get spooky. 

The country with the largest debt—$39 trillion and counting—is the United States. Interest on that debt now exceeds defense spending. Why is that especially problematic? Ferguson’s Law reminds us that a great power is on the verge of decline once interest payments on its national debt surpass its defense spending.

Last year, interest expenses exceeded defense spending for the first time. With over $10 trillion in U.S. debt maturing in the next 12 months and the 10-year yield approaching 4.5%, the massive $1 trillion in interest costs the U.S. absorbed last year are set to climb even higher.

World War II left the world in ruins. The U.S. had the only thriving economy and held most of the world’s gold. The system that emerged from the Bretton Woods Agreement in 1944 put the States at the center of the new global financial architecture. A U.S. $100 bill was a promise to pay the holder $100 in gold.

Even after the link to gold was severed by Nixon in 1971, the dollar retained its privileged role. It remained the primary reserve currency, the unit in which global trade was priced, and the asset most central banks accumulated in their reserves. Once the Saudis agreed that oil would be priced in U.S. dollars (in return for security guarantees), the petrodollar’s status was assured.

That arrangement has allowed the U.S. to run persistent deficits and accumulate huge levels of debt without the consequences that would afflict other countries. In essence, the rest of the world finances America’s debt by holding dollars and U.S. Treasury securities.

But this “exorbitant privilege,” as Valéry Giscard d'Estaing called it, does not repeal simple arithmetic. Debt that grows faster than the economy servicing it eventually becomes unstable. Additionally, the world is slowly turning its back on the petrodollar, removing its most important source of demand.  

When governments carry big debt loads, they typically have three ways out: austerity, inflation, or default. Austerity—spending cuts and tax increases—is hugely unpopular, politically painful, and rarely sustained for long. Default is catastrophic, to be avoided if at all possible. 

Which leaves the third option: inflation, which historically has been the preferred escape hatch. Inflation doesn’t require explicit legislation. It quietly eats away at the real value of that debt. It’s really a stealth tax that the public doesn’t understand, which makes blame hard to allocate.

Inflation simply requires monetary policy that allows the supply of money to grow faster than the supply of goods and services. When that happens, the purchasing power of currency declines. Debts remain the same in nominal terms, but the money used to repay them becomes worth less.

Inflation, in other words, transfers wealth from creditors to debtors. And the largest debtor in the world today, as I said, is the U.S. government. For investors and savers, this creates a challenge. Financial assets, such as bonds and bank accounts, are claims denominated in currency. If the value of the currency erodes, so does the purchasing power of those claims.

Real assets behave differently. They are not mere promises to pay. Real assets are tangible stores of value: land, energy resources, infrastructure, fine art, commodities, precious metals. Their value doesn’t depend on the solvency of a borrower or the credibility of a central bank.

Among these real assets, gold occupies a special place. For more than 5,000 years, across civilizations, it has had recognized value, and for more than half that time it has served as money, collateral, and a store of wealth. Empires have risen and fallen, currencies have come and gone, and gold has retained purchasing power through it all.

Because of gold’s unique set of properties—it’s scarce, durable, divisible, and universally recognized—it has served as the foundation of monetary systems since long before central banking was invented.

Today, gold doesn’t formally anchor the global monetary system, but it plays an important role within it. Central banks hold thousands of tonnes of the yellow metal in their reserves. Many have been increasing those holdings in recent years, diversifying away from dollar-denominated assets.

The movement of gold has been mostly from west to east, reflecting China’s rising economic importance and the U.S.’s weakening position.

The accumulation of gold in eastern vaults also reflects a growing recognition of the world’s debt problem.

When global debt levels reach extremes, confidence in financial promises comes under stress. Investors ask uncomfortable questions: Will governments inflate away their obligations? Will currencies lose their value? Will bonds really preserve wealth over the long term? In such uncertain environments, the appeal of assets outside the financial system tends to grow.

Gold does not generate income, as Warren Buffett liked to say dismissively, but it also cannot be printed. Its supply grows slowly—roughly 1–2 percent per year, as is it mined and processed and added to the global market—while the supply of fiat currency can be expanded dramatically during periods of fiscal stress and aggressive monetary policy.

If the coming years bring continued deficit spending, periodic financial instability, and renewed inflationary pressures—as history suggests they will—then gold’s role as a hedge against monetary disorder can only become more prominent. In a world drowning in $350 trillion of debt, assets that cannot be debased become increasingly valuable.

Today, thanks to the war in the Middle East, we watch the price of oil climb by the day—which means the cost of just about everything else, as measured in fiat currency, is also on the way up. So why is gold down since the start of the war?

First, the initial stage of any panic is to sell everything and move to cash. Second, the fear of inflation caused by higher energy prices has sent bond yields higher and put off any expectation of interest rate cuts by the Fed. Both factors are negative for gold because it does not provide yield. Third, leveraged gold positions are being liquidated as part of an overall market downturn. These are short-term dynamics, while the structural reasons for gold’s appeal remain intact.

What most investors miss is how central banks and governments react to what will surely be a downturn in the economy caused by the oil price shocks. Witness the aftermath of the 2008 financial crisis: gold sold off during the initial panic phase, only to go up two and a half fold once the Fed and other Western central banks initiated quantitative easing and governments implemented bailouts. Today we face a fragile global geopolitical and economic system that almost ensures excessive central bank and government intervention to avert major economic shock.

Historically, excessive debt has been the common denominator in the decline of great powers. This time will be no different. I am quite certain that the price of gold, as measured in fiat currency, can only rise dramatically in years to come.