Luke Gromen: "All Roads Lead To Gold"

High-level thesis

Luke Gromen argues we are entering an accelerating global sovereign-debt regime change that pushes real (and perceived) safe-value demand toward gold. Whether the immediate shock is inflation or deflation/credit stress, policy reaction functions and balance‑of‑payments dynamics will drive flows and FX moves that favor physical monetary assets (gold) over paper claims.

Over a multi‑year horizon (5–10 years) Gromen expects:

• Gold to be materially higher (he cites ranges and scenarios).
• Equities to likely rise in nominal dollar terms but underperform in gold terms.
• Periodic sharp risk‑off episodes followed quickly by aggressive policy backstops.

Assets, instruments, sectors and markets mentioned

• Precious metals: gold (XAU), silver, copper
• Crypto: Bitcoin (BTC), stablecoins (USD‑pegged stablecoin concept)
• Government bonds: US Treasuries (T‑bills, notes, bonds), Japanese Government Bonds (JGBs; 2‑yr and 10‑yr yields referenced)
• FX: USD (DXY), JPY (yen), CNY (yuan)
• Equity: S&P 500 (total return referenced)
• Exchanges / market plumbing: LBMA, COMEX, Swiss refining/export channels
• Commodities / resources: rare earths, critical minerals
• Other institutions: BIS (dollar‑denominated debt data), Federal Reserve (white paper on Cayman purchases)

Key charts and indicators to watch

• Yield differential: 10‑yr US Treasury yield minus 10‑yr JGB yield vs. USD/JPY — historically correlated; recent divergence is an early stress signal.
• Net international investment position (NIIP): Japan’s large positive NIIP vs. the U.S. large negative NIIP (foreigners net long ~$26T more U.S. assets).
• Flows into physical gold: LBMA/COMEX deliveries and U.S. trade data showing “non‑monetary gold” exports.
• Bitcoin as a liquidity/smoke‑alarm indicator: sharp BTC drawdowns interpreted as tightening liquidity.

Key numbers, timelines, and flow facts

• U.S. official gold holdings cited: ~8,100 tonnes.
• Market price of U.S. official gold relative to foreign‑held Treasuries: ~14–15% today; 1989 = 20%; long‑term average = 40–60%.
• China net gold imports (2024): ~975 tonnes.
• China trade surplus: ~$990B (2024) and ~$1.2T (2025, used illustratively).
• Implied balancing gold price example: dividing $1.2T by 975 tonnes gives a notional price of ~ $38,220/oz (illustrative math).
• Scenario price targets/benchmarks mentioned:
  • $15k–$25k/oz “probable” over 10 years (base/mid scenarios).
  • $45k–$50k/oz as an extreme scenario to match 1980 gold vs. U.S. foreign debt proportions.
  • Intermediate math suggesting ~×3.3 from current levels to reach long‑term average parity (mid‑teens thousands per oz in his framing).
• Portfolio guideline: 10–20% of net worth in gold (25% for some); references Jacob Fugger portfolio model (25% gold, 25% cash, 25% stocks, 25% real estate).
• Near term: expects “spicy” markets and liquidity stress over the next 3–6 months; another good year for markets is possible but with big bumps; over 5–10 years material revaluation risk for gold.
• U.S. balances and leverage: foreigners reportedly own ~$26T more U.S. assets on net; ~$9.5T of that is U.S. Treasuries. BIS estimate: ~$90T global dollar‑denominated debt (non‑financial).

Mechanisms and policy dynamics (stepwise)

1. Japan:
   • Shrinking US Treasury vs. JGB yield premium and rising JGB yields put pressure on the yen.
   • Japan faces a choice: defend bond market (cap yields via central bank purchases/printing) or defend the currency. Gromen expects Japan to prioritize the bond market (sacrifice the currency).
2. If large holders sell foreign assets (i.e., “break the piggy bank”):
   • U.S. Treasury yields rise and U.S. risk assets fall, forcing rapid global policy actions (swap lines, liquidity facilities, direct purchases).
3. Eastward flow of physical metal:
   • Asian buying and settlement behavior (China/HK/India/Turkey/UAE) is moving physical metal eastward. U.S. “non‑monetary gold” exports and LBMA/COMEX deliveries are interpreted as gold leaving the West to the East.
4. Gold as reserve/trade settlement asset:
   • If counterparties insist on a neutral reserve (gold) or settle part of trade in gold, that bids the price up and weakens the dollar.
5. Stablecoins and Bitcoin:
   • Stablecoins seen as a potential stopgap for U.S. Treasury funding, but unlikely to substitute meaningfully within the current global balance‑sheet structure.
   • Bitcoin could act as a private neutral reserve, but currently behaves as levered/high beta and is expected to fall versus gold (Gromen expects BTC < 10 oz gold).

Investment recommendations and practical takeaways

• Core protection: buy and hold allocated physical gold (allocated, no counterparty risk).

  “All roads lead to gold.” — phrase used to summarize the central view.

• Recommended allocation: 10–20% of portfolios in gold for most investors; 25% is plausible for those seeking more protection.

• Consider a Fugger‑style diversified allocation for tail‑risk mitigation: 25% gold, 25% cash, 25% equities, 25% real estate, with rebalancing.
• Be prepared for short‑term volatility and rapid central‑bank/Treasury interventions; expect policy backstops in crisis episodes.
• Small Bitcoin allocation is possible (e.g., part of a broader “gold bucket”), but be cautious on timing and valuation.
• Monitor physical delivery flows and country flows (U.S. → Switzerland → China/India/UAE/Turkey/HK).

Risks, uncertainties and conditional outcomes

• Timing is uncertain: Gromen frames the process over years (5–10 years) but expects acute stress pockets in the next 3–6 months.
• Two broad tail risks that drive portfolio design:
  1. Depression/deflationary credit collapse.
  2. Runaway inflation/hyperinflation.
• Policy response is unpredictable in form (swap lines, emergency liquidity facilities, “buy the paper” programs), but interventions are likely and typically rapid.
• If the core thesis proves wrong, the system may still be unsustainable and gold could remain a preferred asset in many failure modes.

Explicit recommendations and cautions called out

• Practical: hold physically allocated gold to avoid counterparty risk; watch physical flow data (LBMA, COMEX, Swiss exports).
• Allocation: 10–20% gold for most investors; consider Fugger‑style allocation and rebalance.
• Guidance: consult a qualified financial adviser who accounts for macro risks — Gromen’s discussion is macro analysis, not a tailored financial plan.

Operational and market‑plumbing notes

• Fed white paper: a cited 37% of U.S. longer‑dated issuance reportedly bought via Cayman vehicles — a concentrated basis trade that can degross rapidly when volatility rises and push Treasury yields higher.
• In crises, foreign holders will sell what they can to raise dollars — often Treasuries — which can make long yields spike even as markets “risk off.” This behavior (2019–2025) is a structural vulnerability.
• Physical bullion market tightness: high deliveries/flows and record redemptions/deliveries are signs of sovereign or large institutional buyers taking metal into custody.

Actionable signals to monitor (short list)

• 10‑yr UST yield vs. 10‑yr JGB spread and USD/JPY behavior (divergence = early warning).
• LBMA & COMEX delivery data, and Swiss refinery export destinations (China/HK/India/Turkey/UAE).
• China net gold imports and China trade surplus reports (flow vs. price implied valuations).
• Bitcoin price vs. gold (BTC/oz) as a liquidity signal.
• Fed/Treasury policy commentary on liquidity support tools, swap lines, and stablecoin developments.
• U.S. trade data showing “non‑monetary gold” exports and whether the pattern persists.

Sources and presenters

• Guest: Luke Gromen — founder, Forest for the Trees (macro research)
• Host: Adam Tagert — founder/host, Thoughtful Money
• Other referenced parties: Andy Sheckman (Miles Franklin), Michael Every, BIS, U.S. Federal Reserve (white paper), LBMA, COMEX, Swiss refiners, and various Thoughtful Money conference participants.

Final concise takeaway

Gromen’s central macro call: sovereign‑debt dynamics and balance‑of‑payments pressures are accelerating a pivot toward gold as a monetary/trade‑settlement asset. Investors should consider meaningful gold exposure (10–20% baseline), monitor physical gold flows and bond/FX spreads (US vs Japan), and expect volatile, policy‑heavy market episodes over the coming months and years.