Gold bull market reflects long-term erosion in purchasing power

You might think that this gold bull rally is quite young. However, Rick Rule argues that this bull market has really been going on since 2000.

The Rule Investment Media CEO told Kitco News that the rising price of gold reflects a long-term erosion in purchasing power driven by negative real interest rates and ever-expanding government debt.

“I would suggest to you that a gold bull market and conversely a bond bear market have been underway since the year 2000.”

We see the struggles in the bond market reflected by persistently high yields despite central bank efforts to push interest rates lower. This indicates a lack of demand for government debt. This was overtly demonstrated by a Danish pension fund’s decision to divest Treasuries. Many made the decisions out as a political move, but AkademikerPension said that wasn’t the case, citing concerns about the U.S. government's fiscal malfeasance.

“The decision is rooted in the poor U.S. government finances.”

Schelde said the driving concern is ever-increasing U.S. debt and decades of overspending, and that the U.S.′s finances made “us think that we need to make an effort to find an alternative way of conducting our liquidity and risk management.”

Last October, the national debt eclipsed $38 trillion, and despite record tariff revenue, the federal government  continues to run large budget deficits.

Rule noted that “The net present value of unfunded entitlement liabilities exceeds $120 trillion,” referring to Medicare, Medicaid, Social Security, and federal pensions. He said combining these unfunded liabilities with a $38 trillion federal debt leaves little margin relative to aggregate private net worth.

What’s the solution?

Rule said the only option is for governments lean on the inflation tax.

“My suspicion is the way that we pretend to honor our obligations is that over 10 years, we inflate away the net present value of the liability.”

Rule said that too many investors get caught up in price instead of considering value. Instead of pricing gold in value, we should consider other things, such as healthcare, housing, and everyday goods, in terms of gold.

“If you thought about them in gold terms, you’ll decide that they’re very cheap.”

He characterized the recent surge in gold as a “catch-up,” noting that gold had failed to reflect the steady deterioration of fiat currencies for many years.

Rule compared the current environment with the 1970s, noting that gold tends to rise in nominal terms as the currency erodes.

Looking ahead, Rule said negative real interest rates, ongoing erosion in purchasing power, and years of underinvestment that now require renewed capital spending will continue to support gold, and that the dynamics driving precious metals higher reflect structural conditions, not a temporary trade.