Luke Gromen: Why Gold Could Hit $18,000 as the U.S. Dollar Faces a Crisis

Summary

Luke Gromen argues that rising real interest rates could trigger a feedback loop among the U.S. dollar, foreign capital flows, Treasury yields, and federal borrowing. In his view, the Federal Reserve and Treasury have repeatedly intervened to keep the Treasury market functioning. He describes this as functional fiscal dominance: the government cannot let bond-market stress run its course without risking broader economic damage.

Gromen’s central concern is that higher rates and a stronger dollar could pressure foreign holders of U.S. assets. He says foreign investors may sell Treasuries first, then U.S. stocks or other assets, pushing yields higher and intensifying market stress. If policymakers respond by supporting the Treasury market or creating money, he expects the dollar to lose value relative to gold. He considers a major monetary reset likely, though its timing and form are uncertain.

Key claims and figures cited

• Gromen says the U.S. net international investment position shifted from about +10% of GDP in the mid-1980s to roughly –8% by 2007–08, then to approximately –80% to –85% of GDP. He interprets this as evidence that foreign ownership of U.S. assets has grown substantially.
• He cites roughly $13–14 trillion in foreign dollar liabilities, alongside a much larger stock of foreign dollar assets, including about $9.5–10 trillion in Treasuries. He argues that dollar appreciation could force foreign borrowers to sell U.S. assets to meet their obligations.
• He says the MOVE index, a measure of Treasury-market volatility, was around 110, up from about 70, and identifies 120–140 as a range that could signal severe Treasury-market stress. He characterizes the market as potentially only “five bad days” from dysfunction.
• He argues that U.S. interest costs and major spending obligations are becoming difficult to sustain relative to federal revenue. His figures include:
  • Interest, social benefits, and veterans’ costs at about 103% of revenue in a strong economy, by his accounting.
  • About 135–140% of revenue when defense spending is included.
  • Veterans’ Affairs spending rising from about $60 billion in 2003 to around $400 billion annually, growing at roughly 10%.
  • Social Security, Medicare, and Medicaid together at about 80% of revenue, with spending growing faster than revenue.
• Gromen says a similar ratio reached about 120% during an earlier period of stress, followed by roughly $600 billion per month in quantitative easing and lower rates. He argues that intervention temporarily reduced the ratio but increased inflation and weakened the dollar.
• He claims U.S. consumer spending is unusually sensitive to asset prices and asserts that stocks may need to rise 10–15% annually to sustain consumer growth. This is his analysis, not an established consensus.
• Gromen’s gold valuation framework compares the market value of U.S. official gold reserves with foreign-held U.S. Treasury obligations:
  • U.S. gold reserves: about 261 million ounces.
  • The ratio is currently around 12%, versus a stated long-run range of 40–60%.
  • He says gold would need to rise roughly 3.5–5 times to return to that range, implying a price of about $16,000–$18,000 per ounce in his example.
  • He cites about 130% as the ratio’s peak during the 1979–80 dollar crisis, which he calls a “gold bubble.”
• He argues that higher gold prices could help support a new monetary arrangement and bring Treasury yields down to roughly 1–2%. This is a hypothetical scenario, not a near-term price or yield forecast with a stated timeline.
• Gromen says the S&P 500 is down about 35% in gold terms since 2000 and about 20% since 2018, including total return.
• He cites Chinese gold imports of roughly 900 tons and estimates gold prices of $26,000 per ounce for 2024 and nearly $35,000 for 2025 when relating gold imports to China’s trade surplus. These are his calculations, not quoted market prices.
• As a historical comparison, the speakers say oil rose about 400% over six months in 1973, accompanying a shift in the monetary and energy landscape.

Investment views and cautions

• Gold: Ferris endorses owning gold. Gromen sees it as part of a possible monetary solution and a potential reserve asset, while also saying it is not a panacea.
• Portfolio resilience: Gromen recommends being debt-free or carrying little debt, avoiding concentration of assets in one place, and maintaining financial and mental flexibility.
• Risk framing: Gromen’s outlook is strongly bearish on the current debt-and-dollar system, but he acknowledges uncertainty about timing and whether the transition would be orderly. Possible outcomes range from policymakers supporting the Treasury market and accepting inflation to a disorderly bond-market crisis.
• Other assets discussed: Bitcoin is mentioned as a possible alternative neutral reserve asset, but Gromen says he considers gold the likelier candidate. He also discusses silver, commodities, oil, stocks, real estate, private credit, and foreign currencies as possible assets affected by a monetary reset.
• No specific portfolio allocation, entry price, or trade is provided. The discussion includes forceful opinions and speculative predictions rather than a tested investment plan.

Methodologies and frameworks discussed

Gromen’s fiscal-dominance test

• Compare interest and major government obligations with tax revenue, rather than relying only on debt-to-GDP or interest-to-GDP.
• Watch for a point at which the government must borrow or create money to meet its obligations.
• Assess whether policymakers allow Treasury-market stress to continue or intervene to preserve market functioning. Gromen treats repeated intervention as evidence of functional fiscal dominance.

Treasury-market feedback-loop scenario

1. Higher real rates may strengthen the dollar.
2. A stronger dollar may increase pressure on foreign dollar borrowers.
3. Those borrowers may sell Treasuries and other U.S. assets.
4. Asset sales may push yields higher and worsen Treasury-market volatility.
5. Policymakers may then intervene, potentially weakening the dollar and supporting gold.

Gold-reserve valuation

• Multiply official U.S. gold holdings by the market price of gold.
• Compare that value with foreign-held U.S. Treasury obligations.
• Compare the resulting ratio with Gromen’s stated historical range of 40–60% to estimate a potential gold price under a reserve-revaluation scenario.

Disclosures

The program closes by stating that the opinions expressed are those of the speaker or author and do not necessarily reflect the views of Stansberry Research, its parent company, or affiliates. No explicit “not financial advice” statement appears in the subtitles.

Presenters and sources

Presenters: Dan Ferris (host) and Luke Gromen (guest, founder of FFTT/Forest for the Trees). Ron Paul is mentioned in the program’s opening promotion.

Sources and figures discussed or attributed: Charles Calomiris, George Soros, Stan Druckenmiller, Judy Shelton, Scott Bessent, Kevin Warsh, Axel Merk, Zoltan Pozsar, U.S. diplomatic cables/WikiLeaks, Shanghai Gold Exchange officials, and former Saudi oil minister Sheikh Yamani. No additional source was clearly identifiable from the subtitles.