The Death Spiral Of Debt And Cost of Servicing The Debt Plus Stagflation And Trade War Means All Roads Lead To Gold And Gold Stocks

Day by day more investors are realizing that all roads lead to gold. A key part of my argument for my extreme bullishness on gold is that the American and global fiat currency and debt system is broken. Gold is the only way to help fix the broken system.

Another thing that I think is broken is the 60/40 portfolio strategy that recommended 60% in Wall Street stocks and 40% in bonds. Now and into the future 60% in gold and gold stocks, and 40% in well run international stocks trading at cheap valuations is a much better allocation. Or even 40% in shorts through bear ETFs on overvalued Wall Street stocks is a much better strategy.

Since the tariffs were announced, we have seen that the US debt market is far from immune from breaking. The panic in the bond market is what caused Trump to blink when it comes to tariffs on every country but Canada, Mexico and China, which are America’s three largest trading partners.

As long as US debt and other countries' debt are only backed by one or two percent with gold, bonds are extremely risky. A 10% backing would be better, 20-40% would be healthier, but things have gotten so bad that ultimately it should be 50% or more. It is only a matter of time before more countries realize that they need to back their debt up with gold in a more substantial way.

When they move to more healthy levels of gold backing their debt, gold will go to $20k per ounce and higher.

Investors shouldn’t wait for the central bankers to figure this out. They should be backing their own debt up with gold. For those that have little debt, they should be owning much higher allocations of gold for wealth preservation, and to defend themselves against constant destruction of purchasing power of fiat currencies.

For too long, US debt was considered risk-free, but the moves in the debt market since the trade war started, investors have been shown that is far from the truth. When any market has massive supply like in US debt, and is about to get even higher supply as $9 trillion of debt has to be rolled over this year, one has to consider who will buy all that debt.

Foreign owners of the US debt are asking those tough questions and starting to figure out they own too much. American owners, outside government funds and the Fed should be asking themselves the same questions. With the massive supply that is only growing, it won’t be long before the Fed gets back in the QE business as the buyer of last resort.

The lists of reasons to be bullish on gold are only growing and getting more powerful. The Death Spiral of Debt is getting worse due to unrelenting government spending and the unsustainable cost of servicing the debt.

Central bankers have been loading up on gold for several years, at record levels for the past four years. In 2024, gold passed the Euro to be the second highest currency in their currency reserves. At the same time, the US dollar has lost around 10% of its position. They understand that the fiat currency and debt system is broken.

Adding fuel to the fire of the gold bull is that stagflation is picking up momentum. This was happening throughout all of 2024 and is getting more serious due to Trump’s plans for mass deportations and tariffs.

Mass deportations remove workers and consumers from the market. In addition to those that are removed, others are leaving on their own, while others stay home from work and shopping out of being worried about being caught by ICE agents. Which is why consumers and corporate leaders have been concerned about economic growth and rising inflation before the tariffs.

Even the Fed, which hates stagflation because they have no tools to fight it, are realizing that growth is slowing and inflation was increasing before the tariffs. They either have to throw the economy and stock market under the bus, or inflation. Now they have another issue to consider, which is the bond market. Before long, they will have to become the buyer of last resort again due to investor concerns about the health of the bond market, and the $9 trillion gorilla in the room.

There really has never been a better time to be bullish on gold.

Generalist investors haven’t figured out yet that the strength in gold during 2024 and 2025 has turned gold miners into free cash flow machines. High-cost producers are making over $1000 per ounce they produce and low-cost producers are mining gold at around half of what they are selling it for. The gold miners are making money hand over fist, and building up cash on their balance sheets at an unprecedented rate.

Gold miners need high-quality development projects and explorers with important discoveries to help them increase production and replace their old deposits with new ones. They are loaded up with cash for mergers and acquisitions, but the problem is that the menu is tiny. This is an amazingly bullish scenario for the gold miners, gold mine developers with high-quality projects and gold explorers with important discoveries.

While the reasons to be bullish on gold and gold stocks are impressive, the supply chain is broken as can be seen in the miners struggling to increase production and replace what they mine with new deposits. Additionally, the tiny menu of high-quality development projects and explorers with important discoveries is a clear signal that the supply chain is going to stay broken for many years, easily continuing for a decade or two.

Not only has there never been a better time to be bullish on gold, the bullish story for gold stocks is even more compelling. Gold above ground is heading much higher, and gold in the ground is extremely cheap from a historical perspective.

All roads lead to gold and gold stocks and the road is made of gold.

All the best,

Allan Barry Laboucan