Gold SWOT: Gold Rallies as Debt Concerns Mount

Frank Holmes

Strengths

Platinum was the best-performing precious metal over the past week, rising 7.75%. Prices advanced on a widening structural supply deficit and critically low above-ground inventories, with mining constraints in South Africa adding to the tight supply picture. The backdrop was further supported by a weaker U.S. dollar this week and steady demand from hybrid auto catalysts.

Spot gold climbed as much as 2.4% on Friday to $4,625.75, putting the metal on track for a third consecutive weekly gain of nearly 6% and its highest price since May. The rally followed the U.S. Treasury’s surprise announcement that it would ramp up buybacks of long-dated government debt, a move that pushed the dollar lower and supported gold. For readers tracking the broader market setup, the move also underscores how closely gold is still tied to shifts in U.S. fiscal policy, the dollar, and reserve-management flows rather than to a single catalyst.

Investors added a net $1.01 billion to the SPDR Gold Shares ETF in the latest session, lifting the fund’s total assets to $146 billion. ETFs added 34,870 troy ounces of gold in the latest trading session.

Weaknesses

Palladium was the weakest-performing precious metal during the week, pressured by an expanding supply surplus. The surplus has been driven by rising secondary recycling and the continued substitution of palladium with platinum in automotive applications. With heavy reliance on traditional gasoline auto catalysts and limited support from jewelry or green-energy uses, palladium remains more exposed than other precious metals.

Costs are also rising for major gold producers. UBS said average all-in sustaining costs, or AISC, for the eight largest listed gold miners increased 7%, equal to $120 an ounce, while cash margins fell 11%, or $400 an ounce. That matters because higher operating costs can leave miners more sensitive to changes in input prices even when bullion itself is holding near record levels.

Russia has remained a net seller of gold. Its gold reserves declined by 1.6 million ounces year to date to 73.2 million ounces as of August 1, the lowest level since January 2020. The total reserve value fell by $33.7 billion over the seven-month period as the government used gold holdings to help finance budget deficits.

Opportunities

Billionaire Ray Dalio said investors should reduce bond holdings and allocate as much as 15% of their portfolios to gold to hedge against the risk of a U.S. debt crisis. Bloomberg reported that Dalio estimates U.S. government revenue at about $5.5 trillion this year, compared with $7.5 trillion in spending, leaving a $2 trillion shortfall. He warned that a U.S. debt crisis could arrive “in three years, give or take two.” Dalio said the budget deficit should be reduced through a combination of spending cuts, higher tax revenue and lower interest rates, and he expects “non-government-produced monies like gold and Bitcoin to do relatively well.”

China’s platinum jewelry market is also evolving as younger consumers move toward understated “quiet luxury” styles and minimalist aesthetics rather than traditional yellow gold. According to Platinum Guild International, that shift is expanding platinum demand beyond bridal and wedding rings into the fast-growing daily and lifestyle fashion segment.

UBS analysts expect gold to challenge the $5,000 per ounce level again in the first half of 2027, saying the breakout above a key resistance zone is significant. Morgan Stanley sees a stronger path for gold above $5,000 per ounce, potentially in 2027 or sooner, citing fading expectations for Fed rate hikes, a weaker dollar, strong central bank buying and growing investor concern over fiscal risks. A Bloomberg Markets Live blogger said gold’s rally suggests the market is increasingly pricing institutional and policy volatility in the U.S., not just the reversal in yields.

Threats

U.S. federal debt hit a record $40 trillion, and faster debt growth together with higher interest costs has heightened market concern. Michael Peterson warned that debt could rise to $50 trillion within six years, which he said would jeopardize the economy and the country’s future.

Canaccord lowered its gold price assumptions by about 12% to 14% across the forward curve and cut its silver assumptions by roughly 12% to 20%. Its revised deck includes 2026 and long-term gold price targets of $4,374 an ounce and $4,747 an ounce, respectively, along with silver targets of $69.09 an ounce and $72.70 an ounce.

Higher costs remain a major concern for investors. UBS said worries about higher cost guidance were most pronounced among gold miners with a weak track record of meeting guidance. For the sector, that keeps execution and margin discipline in focus even as bullion prices attract more attention.

About the author

Frank Holmes

Frank Holmes is the CEO and chief investment officer of U.S. Global Investors. He purchased a controlling interest in U.S. Global Investors in 1989 and became chief investment officer in 1999. In 2006, Holmes was named mining fund manager of the year by the Mining Journal, and in 2011 he was selected as a U.S. Metals and Mining "TopGun" by Brendan Wood International. In 2016, Holmes and portfolio manager Ralph Aldis received the award for Best Americas Based Fund Manager from the Mining Journal. He is also the co-author of The Goldwatcher: Demystifying Gold Investing.

More than 30,000 subscribers follow his weekly commentary in the award-winning Investor Alert newsletter, which is read in more than 180 countries. Under his leadership, the company’s mutual funds have been recognized by Lipper and Morningstar. In 2015, Holmes led the company into the exchange-traded fund business with the launch of the U.S. Global Jets ETF, which invests in the global airline sector. In 2017, U.S. Global Investors made a strategic investment in HIVE Blockchain Technologies, listed in Toronto, and Holmes was appointed non-executive chairman of the board.

Holmes received the Huron Medal of Distinction from Huron University College in 2013, his alma mater for the class of 1978. The award recognizes individuals whose achievements reflect excellence and Huron’s arts and social sciences missions.

He is a native of Toronto and a graduate of the University of Western Ontario with a bachelor’s degree in economics. He is a former president and chairman of the Toronto Society of the Investment Dealers Association.

Holmes is a frequent keynote speaker at national and international investment conferences. He has spoken at the Investing in African Mining Indaba conference, the Denver Gold Group’s European Gold Forum and numerous Money Show events, and has sat on panels with industry leaders including the editor of Barron’s. He continues to speak at conferences throughout the U.S., Canada and overseas.

He is a regular commentator on CNBC, Bloomberg, BNN and Fox Business, and has been profiled by Fortune and The Financial Times. His views on gold appear each week on Gold Game Film in collaboration with Kitco News and TheStreet.com. Holmes was also featured in Barron’s during the commodity rally at the start of 2004. He is a regular contributor to Forbes, Business Insider, Seeking Alpha and the Wall Street Journal’s Experts Corner.

Frank Holmes has been appointed non-executive chairman of the board of directors of HIVE Blockchain Technologies. Both Holmes and U.S. Global Investors own shares of HIVE, directly and indirectly. This interview should not be considered a solicitation or offering of any investment product.