Here's how I think about owning gold, bitcoin, and stocks in Trump's world

As an investor it's important to adapt and US President Trump's tendency to fuel geopolitical chaos is now being transmitted through markets via a stunning gold price rise to a record high above $3050 this week. 

The surge means the Australian dollar has now lost half its purchasing power versus gold in just three years in a historic once-in-a-lifetime move that's pushed an ounce of gold in the local currency to $4840 today, versus $2280 just thee years ago. 

Gold's ascent

These kind of rapid collapses in major fiat currencies are not normal and something people aiming to preserve and create wealth for their family should pay attention to. So let's consider what's going on.  

Gold is traditionally promoted as a hedge against inflation, but until 2022 its steady price appreciation trailed other asset classes such as good quality residential property in Australia as an inflation hedge. 

What's really sent gold soaring since February 2022 is worsening geopolitical splits globally. 

The above chart shows how gold is being driven higher by the war in Ukraine and global central bank demand for the physical metal as a substitute for US dollar reserves such as treasuries. 

Gold's latest surge higher over the last couple of weeks has coincided with President Trump's chaotic tariff policies that threaten to amplify geopolitical splits, alongside his failure to force through a peace deal in Ukraine. 

If we take that as a price signal we can see it's driving gold and it's no secret Trump also wants lower rates, a lower US dollar, and lower oil, with all three likely to prove tailwinds for gold ahead. 

All this is before you consider the wild fiscal deficits and debt the US has failed to cap since they widened as a result of pandemic-era spending policies. 

For whatever reasons these crazy fiscal deficits near 7% of gross domestic product (GDP) in 2024 have not made many headlines in the mainstream media, but ignore their consequences at your peril. 

As an example look at Japan, where the govt has racked up debt of more than three times the country's annual GDP at a debt to GDP ratio of 214%, with the result that savers could only earn 0.1% on deposits at banks as at March 2025. 

Over the last 10 years the Japanese Yen has been wrecked versus gold and while Australia has nothing like Japan's debt problem, it's ultra-high household-debt-to-income and household debt-to-GDP levels means interest rates have to be kept artificially lower to protect home loan borrowers. 

The result is the Australian dollar is cratering versus gold. As such it probably makes more sense than ever to have a little gold exposure in your investment portfolio, especially if you're not a home loan borrower propped up by the Reserve Bank's artificially low interest rates. 

Should you own stocks?

Of course over the long-term the best stocks should outperform gold and could probably be expected to compound at 15% to 20%.

 However, finding the best stocks is easier said than done, and it's worth noting another consequence of ballooning global debt is we now have stock market valuations largely sponsored by central bank policy policies as much as corporate earnings growth. 

About 18 months ago I spoke to influential British economist, Michael Howell, who told me to think of stock markets, price-to earnings (PE) ratios, corporate profits, and central banks like this. 

The earnings (or E in PE ratio) from most of the world's large and mega-cap industrial or tech businesses are now reliant on Chinese manufacturing and exports sold to the rest of the world. 

The price or (P in PE ratio) is determined by central banks' interest rate settings in what profit multiple large global investors will assign to those earnings. The lower interest rates the higher the profit multiple and share market valuation, with vice versa applying in reverse. 

As an example, consider how in 2022 mega-cap tech and stock valuations crashed as large money managers sold after working out that central banks needed to take interest rates much higher-than-expected due to emerging inflation data. 

This is a slight simplification, but shows how you can see stock market valuations are Fed-sponsored and below I'll explain how President Trump's desire to impose tariffs and trade wars threatens to wreck them. 

Arguably, ever since the US blessed China joining the World Trade Organisation in 2001 the deal has been poor China exports to rich Americans or Europeans and funds its consumers to buy its products via trade deficits.  

As a consequence Chinese industrial growth rocketed since 2001, but US industrial production has gone sideways. However, the key point is that US corporates and investors got roaring stock markets in exchange for outsourcing industrial production for the last 25 years. 

Now Trump wants to have his cake and eat it. He wants both industrial production in the US and roaring stock markets.

Already we've seen the market's view that this isn't going to happen as demonstrated by a sell-ff, so we can assume stocks remain under pressure until Trump eases up on his trade wars. 

Finally, I've also explained in a prior article how the total market cap to GDP ratio or 'Buffett Indicator' shows that massive amounts of pandemic-era money printing means there's simply more money now chasing the same amount of stocks in the S&P/ASX 200 (ASX: XJO) or Nasdaq 100 for example. 

This means PE ratios are inflating and value investing is struggling in another structural shift investors need to adapt to. Moreover, say the very best growth stocks (such as Pro Medicus (ASX: PME) are attracting extraordinarily high PE multiples as there's just more money chasing them. 

In my view, over the long term (say 10 years) stocks are still likely to outperform gold, which brings me to some final views on whether you should own the digital gold also known as bitcoin. 

Winning horse

I covered before how hedge fund managers like Paul Tudor-Jones often advise to let price action guide you as to what assets will perform the best and then work back to what's the driving that price action. 

We've seen that with how gold now seems to be getting driven by shifting geopolitics more than anything else (like inflation), and on this basis we can see bitcoin and its 96-fold return over the last 10 years is a massive winning asset class. 

If we revert back to the idea that you can use price action to guide you as to which horse to back then bitcoin is a clear winner to have some exposure to. 

This Machiavellian approach to investing is definitely not taught in finance classes, but given the rise of social media alongside the pandemic's debt and fiscal consequences, it makes sense to adapt to the fast-changing world as an investor. 

Since January 2024, Bitcoin has also been adopted by exchange traded funds (ETFs) such as Blackrock, which means on a risk-adjusted basis it's perhaps better value today at US$84,000 than $30,000 it cost before the (ETFs) were approved by regulators to take it officially mainstream.

Still, to manage risk I'd work from the assumption that bitcoin offers high returns but could easily fall 90% in a matter of weeks or months. Why? It's just speculation guided by price followers, with a lot of leverage in the system due to one man. 

Michael Saylor's Microstrategy now owns nearly 500,000 or2% of total supply bought at an average price of $US66,000 worth around US$33 billion. The catch is that much of it was bought using leverage by issuing debt to investors to buy the bitcoin. 

Clearly, if I were to regularly raise billions of dollars in debt to bet on red at the roulette table at the Crown Casino this would be a dumb business model at risk of collapsing. 

Microstrategy's model is not much different and the avowed HODLer is at risk of bringing the market crashing down. 

Especially as say 99% of other bitcoin holders are sellers at the right price for cash. Nobody knows what price the marginal buyers are prepared to sell at but as Saylor makes them richer by pushing up the price they will naturally become more inclined to sell to the point where we hit an air pocket and deleveraging that takes us all the way back down to US$10,000 say. 

Remember market bubbles and crashes can always be way bigger than you imagine.

On this basis I wouldn't allocate more than 5% of an investment portfolio to bitcoin. Gold you could perhaps allocate a little more depending on your circumstances. The rest I'd tip into stocks and if you have the experience to pick winning stocks yourself that's great, but remember the market is a mine field and not many people do. For disclosure this roughly reflects my own investment portfolio holdings as of today. 

If you have any views on all this, please let me know in the comments below.