"Every Bull Market Climbs a Wall of Worry" | Clive Thompson on Gold

Clive Thompson, a veteran wealth manager with over 50 years of experience, explains the recent correction in gold from around $5,500 down to the $4,100 area. He argues that the sell-off is largely driven by sentiment and capital flowing into AI and technology stocks rather than any breakdown in gold’s fundamentals. Thompson remains constructive on gold’s long-term prospects, citing ongoing central bank buying, de-dollarization, rising government debt, and inflation risks, while also discussing gold’s evolving role as a hedge and why he has increased his exposure to gold mining stocks.

• Gold corrections are normal in bull markets. Thompson notes that every bull market climbs a “wall of worry” and that pullbacks often occur when sentiment is most bullish. He views the current decline from ~$5,500 to ~$4,100 as part of a normal cycle rather than the end of the uptrend.
• The core fundamentals supporting gold remain strong. These include record central bank buying (with 91% of central bankers expecting to be net buyers), continued de-dollarization, rising core inflation in the US, and unsustainable global government debt levels that increase the long-term risk of currency devaluation.
• The recent weakness in gold is mainly due to investors rotating out of gold and into high-flying AI, semiconductor, and data center stocks. Thompson observes that many buyers who chased gold higher have now moved into whatever is moving strongly, and capital has not yet rotated back.
• Gold is no longer primarily reacting to geopolitical events as a traditional hedge. Thompson explains that in today’s world, with alternatives such as digital dollars available, gold responds more to a loss of confidence in major fiat currencies than to localized wars.
• Governments could potentially use gold revaluation to help manage debt. Thompson outlines a mechanism where a government sells gold to its central bank at a much higher price and then repurchases it by issuing perpetual, zero-interest “gold notes,” effectively monetizing gold without creating conventional inflation.
• Including gold in a portfolio has historically improved returns, Sharpe ratios, and reduced maximum drawdowns. Thompson’s analysis shows that allocations in the range of 20–30% gold have performed better than traditional 60/40 portfolios over long periods.
• Clive has increased his exposure to gold mining stocks to gain leverage on a rising gold price. He explains that mining company profits typically rise much faster than the gold price itself, and many producers are now expected to report significantly higher earnings.