Updated Analysis by Janet Tavakoli, President of Tavakoli Structured Finance

Gold Debate: Investment Legends Divided on Strategy

The investment world remains split on gold’s role in modern portfolios. Warren Buffett and Charlie Munger continue to advocate against gold ownership, while Ray Dalio, David Einhorn, Jim Rogers, John Paulson, George Soros, and I (among many others) maintain gold positions—but that doesn’t mean you should automatically follow suit.

Warren Buffett’s legendary status in finance is well-earned, though he’s the first to acknowledge his fallibility. Beyond his well-known missteps with Berkshire textiles and the $2 billion Conoco Phillips loss over a decade ago, Buffett has made numerous other investment errors. However, he’s consistently avoided catastrophic mistakes and positioned Berkshire Hathaway to benefit from financial crises—regardless of public opinion about his methods. Notably, he executed a highly successful silver speculation years ago, proving he’s not entirely adverse to precious metals. His current stance against gold may prove prescient.

I maintain a gold position as an inflation hedge and currency devaluation protection, recognizing that gold may preserve value better than many fiat currencies, potentially including the USD. However, the future landscape includes numerous variables and substantial market manipulation in gold trading.

Gold’s Monetary Role in Modern Finance

Gold remains money—and like all money, it has a price. Any durable asset possesses at least two pricing mechanisms: the price at which it trades in markets, and the value it generates through utility over time. Gold exhibits purchasing power (the first price type) and serves as a store of value, with capital appreciation or depreciation reflecting fluctuations in its purchasing power.

Historically, nations settled payment imbalances in gold, with the metal trading at fixed rates against respective currencies. Under the Bretton Woods system, Americans could convert dollars directly to gold—a practice that ended relatively recently in historical terms.

Nixon Shock: End of Gold Convertibility

Rome was beautiful during Ferragosto on August 15, 1971. I was traveling through Europe that summer—my first solo international trip—ending in the Eternal City with carefully budgeted dollars converted to lire. I had planned for everything except President Nixon’s historic decision.

The U.S. had recognized since the 1960s that gold reserves were insufficient to back dollar obligations. When faced with an unwanted conversion demand in 1971, President Richard Nixon terminated direct dollar-to-gold convertibility. While the dollar’s formal definition wasn’t changed until 1976 to exclude gold references and establish pure fiat status, the practical effect was immediate.

American travelers abroad suddenly found restaurants, hotels, and merchants unwilling to accept floating-rate dollar risk. With Roman banks closed for the holiday, cash-strapped Americans faced serious problems.

The hotel manager asked departing American guests: “Do you have gold? Because look what your American President has done.” He was serious about accepting gold as payment.

Half the hotel housed Americans, and anxiety was palpable. Nobody understood how dramatically the dollar might fluctuate in the coming days.

I immediately prepaid my hotel bill in lire before other Americans could approach me as their personal exchange service. The manager was delighted, and the staff treated me royally—I wasn’t like “those other Americans with their stupid dollars.” For my remaining stay, merchants and restaurants required proof I could pay in lire before serving me. My careful budgeting had saved the day.

Currency Crisis Lessons: Iran and India

In 1978, during the Shah’s deposition in Iran, toman-to-dollar convertibility was artificially restricted. Iranians with offshore hard currency and gold assets watched others sell land, hand-woven carpets, and valuables for pennies on the dollar to buyers offering hard currency or gold. Gold was trusted money.

More recently, India implemented restrictions and taxes making gold purchases difficult for citizens. Subsequently, rupee convertibility to stronger currencies halted, and the government severely devalued the rupee. Well-connected individuals received advance warning before the broader population suffered the consequences.

Gold Investment Case for Americans in 2025

I prefer owning productive, well-managed assets generating products and services people regularly purchase. I want business management characterized by honesty rather than greed. I’d prefer a global financial system free from fraud and manipulation, with present and future debt representing a small GDP percentage and balanced government budgets. I want legal consequences to apply equally to those connected to Congress and the White House. I don’t want the Federal Reserve purchasing suspect banking assets or accepting them as collateral. I don’t want the Fed buying massive quantities of treasury bonds. (I also wish I could be invisible at will and fly like Superman.)

Since I live in reality rather than wishful thinking, I diversify. Gold represents just one diversification option among many. Diversification doesn’t guarantee against losses—it simply makes total portfolio loss unlikely while potentially generating strong long-term returns.

2024-2025 Gold Bull Market Dynamics

Gold prices are expected to average $3,675/oz by the fourth quarter of 2025, with the precious metal surpassing multiple record peaks in 2024 and breaking through the $2,900/oz barrier for the first time in February 2025. Prices peaked at $3,500/oz in April against a backdrop of unpredictable U.S. trade policy.

Record Central Bank Buying Drives Demand

Central banks purchased a staggering 1,045 tonnes of gold in 2024, marking the third consecutive year above 1,000 tonnes. Even with three consecutive years of more than 1,000 tonnes of central bank gold purchases, the structural trend of higher central bank buying has further to run in 2025 and 2026.

The motivations behind this unprecedented institutional buying are clear: The 2022 freezing of $300 billion in Russian central bank assets sent shockwaves through the global financial system, prompting nations to reconsider their vulnerability to sanctions and the dominance of US dollar reserves. Global USD reserves have declined from 72% to 58% over the past two decades.

In 2024, the main reported purchasers of gold — buying 20 tonnes or more — were Poland, Türkiye, India, Azerbaijan (SOFAZ), China, Czechia and Iraq.

Why Gold Appeals to 2025 Investors

Gold offers several compelling advantages in today’s environment:

No Credit Risk and Tangible Value: Unlike many financial assets, gold presents no counterparty risk and has never traded at zero. It’s a physical asset during a period of reasonable distrust toward financial instruments and their managers.

Inflation and Currency Hedge: Central bank buying remains strong; consumer demand from India and China is growing; and more investors seek gold due to expected rate cuts, geopolitical tensions, and worsening fiscal deficits.

Geopolitical Safe Haven: Investors are increasingly allocating capital to gold as a hedge against the unpredictable consequences of geopolitical events—be it trade disruption, sanctions, or outright conflict.

Interest Rate Environment: While gold doesn’t pay interest, current rates remain relatively low, and gold has low correlation with other asset classes, so can act as insurance during falling markets and times of geopolitical stress.

Current Market Dynamics and China’s Role

China continues playing a significant role in gold markets. Following an 18-month buying spree, China stopped purchasing gold for reserve purposes in May 2024 when the precious metal reached an initial high, but resumed purchases in November 2024. This pause and resumption pattern suggests strategic price-sensitive buying rather than panic accumulation.

General Wesley Clark’s Geopolitical Insights Remain Relevant

General Wesley Clark’s revelation of post-9/11 plans for military intervention in seven countries within five years (Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran) continues to influence global dynamics. Recent geopolitical tensions and ongoing conflicts in multiple regions support gold’s role as a crisis hedge.

Gold Investment Risks and Challenges

CBDC Impact on Gold Markets

A significant new development since the original article is the global movement toward Central Bank Digital Currencies. 137 countries & currency unions, representing 98% of global GDP, are exploring a CBDC, with 3 countries having fully launched a digital currency—the Bahamas, Jamaica, and Nigeria.

CBDCs present both opportunities and challenges for gold investors. CBDC indices have a positive relationship with the volatilities of cryptocurrency, foreign exchange, and bond markets, as well as VIX and Gold, suggesting that CBDC development may actually increase gold’s appeal as a hedge against digital currency uncertainty.

However, the US is an outlier amongst its peer central banks, with President Trump issuing an executive order in 2025 to halt all work on a retail CBDC, making the US the only country to do so.

Market Volatility and Manipulation

Gold prices remain highly volatile. The manipulation concerns raised in the original article persist, with added complexity from algorithmic trading and larger institutional flows. Although gold’s momentum stalled in November as Donald Trump’s win at the polls drove a surge in risk assets and the US dollar, demonstrating how quickly sentiment can shift.

Gold Confiscation Risk: Executive Order 6102

The extreme scenario remains possible: government criminalization of gold ownership. President Franklin D. Roosevelt’s Executive Order 6102 on April 15, 1933, provides historical precedent. His justification was that gold hoarding was stalling economic growth—similar to how banks later issued value-destroying securitizations that constipated sound lending. Yet we don’t punish financial criminals in the U.S.—it’s easier to punish those defending themselves from criminal behavior consequences.

How Much Gold Should You Own?

Expert Opinions Range Widely

Warren Buffett and Charlie Munger may still be correct that zero gold allocation is optimal.

Greg Mankiw, Harvard economics professor and former department chairman, wrote in the New York Times that he no longer opposes gold and considers a 2% world market portfolio weight reasonable. He later suggested 4% might be “correct” based on “roughly plausible” assumptions involving uncorrelated portfolios of stocks, bonds, and gold with magical return characteristics and specific volatility assumptions. To be clear, he fabricated these assumptions without providing timeframes—in other words, he doesn’t know either.

I’ve met with foreign fund managers holding over 50% gold allocations. They also lack definitive answers.

2025 Gold Price Forecasts and Market Outlook

Many analysts now expect gold to reach or exceed $3,000 per ounce by the end of 2025, particularly if inflation remains sticky and rate cuts begin to materialize in key economies. Base Case (50% Probability) projects gold trading between US$2,600/oz and US$2,900/oz, while Bull Case (30% Probability) suggests US$2,900/oz to US$3,100/oz.

Final Thoughts: Gold in Uncertain Times

Anyone claiming to know next year’s or next month’s gold price is deceiving you. No one knows. No one can definitively say whether gold diversification is good, neutral, or bad. However, nearly everyone agrees that diversification is generally wise.

In part one, I promised to explain why reasonable people diversify into gold. The reasons remain compelling in 2025:

• Unprecedented central bank purchases creating structural demand
• Persistent global monetary instability and debt concerns
• Geopolitical tensions showing no signs of abating
• CBDC development creating new monetary system uncertainties
• Traditional portfolio diversification benefits during market stress

The fundamental question hasn’t changed: If you can’t predict the future, why behave as if you can? Gold remains one tool among many for managing that uncertainty.

Gold’s Bottom Line

Gold’s role as money persists in our modern financial system, supported by institutional buying and global monetary tensions. While allocation percentages remain a matter of individual risk tolerance and investment philosophy, completely ignoring gold’s portfolio benefits may be shortsighted in today’s uncertain economic environment.

Gold Related Articles

Gold Market Manipulation: The Complete Guide

The Great Gold Conspiracy of 1869

Swiss National Bank Cuts to Zero: Decade After Franc Shock