Gold: The Mirror of Debt and Inflation in 2025
As most seasoned gold investors know, gold is far from being just a “pet rock”—it is real money. Its inherent qualities make it the undisputed ultimate currency, a fact proven repeatedly over thousands of years. When discussing gold’s price action, we must remember that fiat currencies are essentially tied to it. In other words, when we say gold is going up, what’s really happening is that fiat currencies are going down. Take gold vs. the U.S. dollar, for example—let’s go back 50 years. In 1970, the price of gold was $35 an ounce. By 1980, it had soared to around $850—nearly a 25-fold increase. What changed? A number of key events occurred. The Bretton Woods system—also known as the gold standard—collapsed, which had previously fixed the exchange rate between gold and the dollar. Its dissolution triggered massive inflation. At the beginning of the 1970s, inflation was around 2%. By the early part of the decade, it climbed to 5.5%, eventually reaching 14%. But inflation wasn't the only driver—geopolitical tensions, surging oil prices in 1973, wage increases, and supply shocks all contributed significantly to inflationary pressures. By January 1980, gold peaked at $850 per ounce, and U.S. unemployment reached around 10%. However, gold prices soon began to fall. Why?
Interest Rates vs. Gold
To mitigate falling currency, the Federal Reserve raised interest rates aggressively, with the federal funds rate hitting 15% and remaining above 10% on average throughout the decade. It was the only viable strategy to combat inflation. But how do higher interest rates impact gold prices? In reality, gold doesn’t lose value—but the U.S. dollar gains strength. As borrowing costs rise, the currency's value increases, making gold appear to lose value in dollar terms. It’s a matter of perception—gold stays constant, while fiat currencies fluctuate.
Gold as a Safe Haven
Gold is often debated as either a speculative asset or a safe haven. Let's consider the period between 1996 and 2002. The S&P 500 rose from 400 to 1530 by March 24, 2000, then dropped nearly 50% by October 2002. The Nasdaq did worse—it climbed from 1,000 to 5,000 and crashed back to 1,000. During this time, investors were heavily betting on tech stocks. Amazon’s stock price, for instance, fell by 90% in just two years. And gold? It remained stable, rising about 25% from $270 to $350. This shows that market participants viewed gold as a safe haven.
During the 2008 financial crisis, gold rose from $730 in October 2008 to $1,300 by the end of 2010. Massive stimulus measures were introduced—interest rates were slashed, government spending soared, and the U.S. launched the American Recovery and Reinvestment Act (ARRA). The Federal Reserve implemented quantitative easing, purchasing financial assets in large quantities. Even when the Fed tried to raise interest rates in 2015 and 2018, they had to reverse course due to market pressures. In the COVID years, trillions of dollars were pumped directly into personal accounts, leading to further currency devaluation. Gold reached an all-time high of around $2,000. Subsequent geopolitical crises in 2022 and the tariff wars have helped push gold even higher—to $3,450, a 75% increase in just a couple of years.
Gold and Debt: A Correlation
According to the U.S. Treasury’s 2024 report (source), the total net liabilities on paper exceed $39 trillion. The debt-to-GDP ratio is near 100% and is projected to exceed 500% within the next 75 years. “The continuous rise of the debt-to-GDP ratio indicates the current fiscal policy is unsustainable.” – U.S. Treasury Report, 2024 If we overlay gold price trends against national debt and monetary policy, a pattern becomes clear: gold reflects not only inflation but also how much we owe—currency depreciation, debt accumulation, and economic uncertainty. Gold continues to serve as a mirror to the health (or weakness) of fiat currencies. For investors, understanding the underlying economic forces—not just surface-level price moves—can offer a clearer perspective on long-term opportunities in gold.