budget

Central Banks Are Buying Gold; Should You?

Scott BuchananLeave a comment

Anyone who reads financial headlines knows that gold prices have soared in the past year. Why?

Gold has historically been a relatively stable store of value, and that role seems to be returning after decades of relative neglect. Official numbers show sharply increased buying by the world’s central banks, led by China, Poland, and Azerbaijan in early 2025. Russia, India and Turkey have also been major buyers. There is widespread conviction that actual gold purchases are appreciably higher than the officially-reported numbers, to side-step President Trump’s threatened extra tariffs on nations seen as de-dollarizing.

I think the most proximate cause for the sharp run-up in gold prices in the past twelve months has been the profligate U.S. federal budget deficit, under both administrations. This is convincing key world actors that the dollar will become increasingly devalued over time, no matter which party is in power. Thus, it is prudent to get out of dollars and dollar-denominated assets like U.S. T-bonds.

Trump’s erratic and offensive policies and statements in 2025 have added to the desire to diversify away from U.S. assets. This is in addition to the alarm in non-Western countries over the impoundment of Russian dollar-related assets in connection with the ongoing Russian invasion of Ukraine. Also, there is something of a self-fulfilling momentum aspect to any asset: the more it goes up, the more it is expected to go up.

This informative chart of central bank gold net purchasing is courtesy of Weekend Investing:

Interestingly, central banks were net sellers in the 1990s and early 2000s; it was an era of robust economic growth, gold prices were stagnant or declining, and it seemed pointless to hold shiny metal bars when one could invest in financial assets with higher rates of return. The Global Financial Crisis of 2008-2009 apparently sobered up the world as to the fragility of financial assets, making solid metal bars look pretty good. Then, as noted, the Western reaction to the Russian attack on Ukraine spurred central bank buying gold, as this blog predicted back in March, 2022.

Private investors are also buying gold, for similar reasons as the central banks. Gold offers portfolio diversification as a clear alternative from all paper assets. In theory it should offer something of an inflation hedge, but its price does not always track with inflation or interest rates.

Here is how gold (using GLD fund as a proxy) has fared versus stocks (S&P 500 index) and intermediate term U. S. T-bonds (IEF fund) in the past year:

Gold is up by 40%, compared to 12.6% for stocks. That is huge outperformance. This was driven largely by the fact that gold rose strongly in the Feb-April timeframe, while stocks were collapsing.

Below we zoom out to look at the past ten years, and include the intermediate-term T-bond fund IEF:

Gold prices more than doubled from 2008 to 2011, then suffered a long, painful decline over the next two years. Prices were then fairly stagnant for the mid-2010s, rose significantly 2019-2020, then stagnated again until taking off in 2023. Stocks have been much more erratic. Most of the time stock returns were above gold, but the 2020 and 2024 plunges brought stocks down to rough parity with gold. Since about 2019, T-bonds have been pathetic; pity the poor investor who has been (according to traditional advice) 40% invested in investment-grade bonds.

How to invest in gold? Hard-core gold bugs want the actual coins (no-one can afford a full bullion bar) to rub between their fingers and keep in their own physical custody. You can buy coins from on-line dealers or local dealers. Coins are available from the U.S. Mint, but reportedly their mark-ups are often higher than on the secondary market. 

An easier route for most folks is to buy into a gold-backed stock fund. The biggest is GLD, which has over $100 billion in assets. There has long been an undercurrent of suspicion among gold bugs that GLD’s gold is not reliably audited or that it is loaned out; they refer derisively to GLD as “paper gold” or gold derivatives.  The fund itself claims that it never lends out its gold, and that its bars are held in the vaults of the custodian banks JPMorgan Chase Bank, N.A. and HSBC Bank plc, and are independently audited. The suspicious crowd favors funds like Sprott Physical Gold Trust, PHYS. PHYS is claimed to have a stronger legal claim on its physical gold than GLD. However, PHYS is a closed-end fund, which means it does not have a continuous creation process like GLD, an open-end ETF. This can lead to discrepancies between the fund’s share price and the value of its gold holdings. It does seem like PHYS loses about 1% per year relative to GLD.

Disclaimer: Nothing here should be taken as advice to buy or sell any security.

95 Days of Trump Spending & Cutting

Zachary BartschLeave a comment

Generally, decisions to spend federal funds come is the authority of congress. But the Trump administration has very publicly made clear that it will try to cut the things that are within its authority (or that it thinks should be within that authority). Truly, the fiscal year with the new Republican unified government won’t begin until October of 2025. So, the last quarter is when we’ll see what the Republicans actually want – for better or for worse. In the meantime, we can look past the hyperbole and see what the accounting records say. The most recent data includes 95 days after inauguration.  First, for context, total spending is up $134 billion or 5.8% from this time last year to $2.45 trillion.

The Trump administration has been making news about their desire and success in cutting. Which programs have been cut the most? As a proportion of their budgets, below is a graph of were the five biggest cuts have happened by percent. The Cuts to the FCC and CPB reflect long partisan stances by Republicans. The cuts to the Federal Financing Bank reflect fewer loans administered by the US government and reflect the current bouts to cut spending. Cuts in the RRB- Misc refer to some types of railroad payments to employees. In the spirit of whiplash, the cuts to the US International Development Finance Corporation reverse the course set by the first Trump administration. This government corporation exists to facilitate US investment in strategically important foreign countries.

But some programs have *increased* spending since 2024. The five largest increases include the USDA, the US contributions to multilateral assistance, claims and judgments against the US, the federal railroad administration, and the international monetary fund. Funding for farmers and railroads reflect the old agricultural and new union Republican constituencies. The multilateral assistance and IMF spending reflects greater international involvement of the administration, despite its autarkic lip service.

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Spending Like a…

Zachary Bartsch2 Comments

Is the federal government spending at a faster rate? Your answer probably has more to do with your biases than with anything else. Most people don’t know the numbers or they imagine some more appropriate past. Below is logged current federal expenditures (this does not include government fixed investment, only consumption. Yes, we can argue about measures. This doesn’t include transfers).

The line of best fit is about 1.6% per quarter or 6.4% per year. Golly! Our spending is rising so fast! But, US federal spending grew relatively slowly in the 90s – maybe due to that fiscal conservative, Bill Clinton. And our federal spending grew even more slowly between 2010 and 2016 – maybe due to that other fiscal conservative, Barack Obama.

But, inflation varied over this period. What about real, inflation adjusted federal spending? See Below.

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Buying in Bulk: Money Saver or Self Sabotage?

Zachary Bartsch1 Comment

Recently, I’ve been buying a lot more non-durable goods when they are on sale. Whereas previously I might have purchased the normal amount plus one or two units, now I’m buying like 3x or 4x the normal amount.

What initially led me here was the nagging thought that a 50%-off sale is a superb investment – especially if I was going to purchase a bunch eventually anyway. I like to think that I’m relatively dispassionate about investing and finances. But I realized that I wasn’t thinking that way about my groceries. The implication is that I’ve been living sub-optimally. And I can’t have that!

If someone told me that I could pay 50% more on my mortgage this month and get a full credit on my mortgage payment next month, then I would jump at the opportunity. That would be a 100% monthly return. Why not with groceries? Obviously, some groceries go bad. Produce will wilt, dairy will spoil, and the fridge space is limited. But what about non-perishables? This includes pantry items, toiletries, cleaning supplies, etc. 

Typically, there are two challenges for investing in inventory: 1) Will the discount now be adequate to compensate for the opportunity cost of resources over time? 2)  Is there are opportunity cost to the storage space?

For the moment, I will ignore challenge 2). On the relevant margins, my shelf will be full or empty. I’ve got excess capacity in my house that I can’t easily adjust it nor lend out. That leaves challenge 1) only.

First, the Too Simple Version.

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Good Old Lemons

Zachary Bartsch1 Comment

This post doesn’t have a darn thing to do with economics, statistics, or finance. This is a post about citrus storage.

There are problems with buying citrus.

  • If you get a big Sam’s Club size bag of limes, then they start going hard and thin-skinned by the end of a week.
  • A bag of grapefruit? There’s usually one in the bag that’s goes moldy almost immediately and you know what they say about one bad grapefruit spoiling the bunch.
  • Mandarins shrink and get hard to peel.
  • Lemons – even if you refrigerate them – get soft and un-zest-worthy.

There is a solution. Now, our lemons and limes last upwards of 6-8 weeks with hardly a symptom of age. Mandarins don’t shrivel and grapefruits remain edible. No, silly goose, the answer isn’t free markets and the price system.

Maybe it’s all of the additional vitamin C that I’m getting. Maybe it’s the warm and fuzzy feeling of money well spent. But I’m now excited each time that we purchase citrus. And I get a cozy feeling of satisfaction whenever I see a nice lemon that definitely should not still be any good.

The answer is really simple. You too can achieve such amazing results. All you have to do is:

  • Rinse your citrus under water, rubbing gently to remove any invisible bad-guy germs. In reality, you’re probably getting rid of mold spores.
  • Place the wet citrus into a ziploc bag, seal, and refrigerate. The refrigeration further retards the growth of any unwanted spores. The sealed bag prevents too much air flow and drying.( I don’t bother refrigerating grapefruit and oranges because I eat them quickly enough).

That’s it. You too can have 8 week old limes and lemons that you bought on sale or in bulk that are nearly as fresh as the day that you purchased them.

Enjoy!