Hard Assets in an Era of Fiscal Constraint
- James McKay
- 1 day ago
- 8 min read
Updated: 9 hours ago
Gold breaking through $5,000 and silver clearing $100 within three of each other in January triggered a predictable wave of commentary across both the financial and mainstream press. Despite the substantial correction on January 30, both gold and silver have continued to outperform almost every major asset class. Silver, in particular, saw a staggering 150% gain in 2025, surpassing the performance of gold, equities, and Bitcoin.
Despite the volatility we've seen across the hard assets complex in recent months, it would be a mistake to view them as isolated price events. As outlined in our "Debasement trade piece from October", the past few years have been defined by a steady erosion of confidence in fiat-denominated claims, driven by persistent fiscal expansion, rising debt service costs, and an increasingly visible tension between political incentives and monetary discipline. What we are seeing now is that framework being reflected, with significant force, in asset prices.
Hard assets are reasserting themselves
Gold's breach of the $5,000 psychological mark was big news and yet another major milestone in what has been one of its most impressive bull runs in recent memory. It is easy to forget that much of the bullish energy unleashed over the past 24 months has been building for well over a decade.
Back in 2011, gold's rise was principally tied to hyperinflationary fears in the wake of then-Fed Chair Ben Bernanke's quantitative easing policies, and it wasn't until 2024 that gold decisively out to the upside to start its current, more structural, bull run.
Figure 1: Gold’s move through $5,000 marks the breach of a long-standing psychological threshold, particularly in a fiscal environment defined more by constraint than speculation.
What matters more than the headlines, however, is what these moves express about the current monetary environment.
In our view, gold at $5,000 is a macro outcome not just another speculative event. It reflects a world in which fiscal dominance has become difficult to ignore and where debt dynamics increasingly dictate policy choice. Anyone paying attention to global reserve flows will know that gold is reasserting its relevance as sound money.
Case in point: For the first time since the mid-1990s, foreign central banks now hold a larger share of gold than US Treasuries within their international reserves. By the end of 2025, gold’s share of global reserves rose to roughly 18% and continues to climb.
Figure 2: For the first time since the mid-1990s, gold now accounts for a larger share of foreign central bank reserves than US Treasuries, underscoring a gradual shift away from sovereign debt.
Crucially, this reversal explicitly marks a reconfiguration of global balance sheets away from government debt and toward assets perceived as politically neutral stores of value. Central banks operate on multi-decade horizons, so this is not a short- or mid-term speculative trade. Softer gold prices, should they materialise, are more likely to accelerate this accumulation than reverse it.
Gold and silver are rising together, but for different reasons
Silver’s move has been even more dramatic than gold's, and it deserves to be treated on its own terms rather than just considered a leveraged proxy for its yellow counterpart. While gold’s rise is primarily a balance-sheet story, silver’s rally reflects acute stress across both monetary and industrial channels.
On the supply side, silver has been grappling with a multi-year mining imbalance that has left the physical market structurally tight. Furthermore, the quantity of physical silver "eligible" for delivery has been in a structural decline for years.
For example, we noted back in 2023, that the silver registered ratio had fallen as low as 11.1% of total inventory, the lowest in over 20 years. This chart reflects a critical long-term trend in COMEX silver inventories: total stocks (eligible + registered) grew from roughly 100 million ounces in 2005 to over 400 million by 2020, yet the proportion of registered silver (metal available for immediate delivery against futures contracts) collapsed from 60–70% to below 20%. This shrinking registered share left the market increasingly exposed.
The declining "registered" percentage illustrates why silver became so vulnerable to a physical squeeze. Far more silver exists in vaults than is actually available for delivery, driving the rapid, volatile surge that has set it apart from other precious metals.
By early 2026, registered stocks had fallen to just 108 million ounces out of 412 million total, covering only approximately 14% of the roughly 760 million ounces in open futures interest. That extreme inventory tightness, combined with a persistent 200-million-ounce annual supply deficit and explosive industrial demand (especially from solar, EVs, and electronics), was a big driver of silver’s parabolic move to $120 per ounce in January 2026.
To put the industrial demand into perspective, projections for 2031 of around 45 million EVs imply a silver demand of approximately 54 milllion ounces from vehicles alone (assuming an average of approx. 1.2 oz per vehicle excluding infrastructure) accounting for roughly 6-7% of total global demand and growing at an aggressive pace.
Figure 4: Projected growth in global EV production points to a sustained increase in industrial silver demand over the coming decade.
Layered on top of this is broader hard-money demand tied to the same debasement dynamics supporting gold. While it's true that a retail 'silver rush' in the West has not yet taken place, the same does not hold true for Asia. In Hong Kong and mainland China, precious metals dealers across Hong Kong and mainland China report a massive surge in demand as residents "pile into" silver, feeling they missed the initial gold rally.
All of these developments invalidate of the more persistent misreadings of the current metals move, namely, that it represents a speculative "blow-off". In prior speculative peaks, rising prices were accompanied by rapidly expanding futures open interest, reflecting leverage chasing momentum. This time, silver prices have surged without a commensurate expansion in open interest; in fact, aggregate open interest has remained flat or even declined as prices accelerated.
Figure 5: Silver prices have risen sharply without a corresponding expansion in open interest, suggesting the move is being driven by physical demand rather than leveraged speculation.
That divergence matters as it suggests that demand is coming from entities that want the metal, not paper exposure. Industrial users and investors seeking physical settlement are exerting pressure on a market where available supply is already constrained. This is fundamentally different from a leverage-driven rally built on rolling paper claims.
Reserve logic is converging across old and new systems
One of the more revealing balance-sheet signals of the past year came not from a central bank, but from within the digital-asset ecosystem itself. Tether, the firm that effectively acts as the settlement layer for much of crypto liquidity, has been steadily increasing its physical gold holdings while slowing its pace of US Treasury accumulation.
By early 2026, Tether’s gold reserves have grown to exceed those of many mid-sized central banks, a move that mirrors the broader macro trend of sovereign diversification away from dollar-denominated debt.
Figure 6: Gold has steadily increased as a share of Tether’s reserves, reflecting a gradual shift in reserve composition toward hard assets.
The idea of a tech giant stockpiling bullion may feel counterintuitive, but it is not an isolated incident. Some may recall that Palantir added over $50 million in physical gold to its balance sheet as early as 2021 specifically to hedge against "black swan" risks.
While this hasn't yet become a universal corporate trend, it suggests that organizations operating at the intersection of technology, finance, and geopolitics are reaching similar conclusions about what constitutes a true "anchor" for their reserves.
What Tether is signaling is not a rejection of Bitcoin, but an acknowledgment that reserve composition is becoming a competitive factor in an industry that touches global liquidity. Gold still functions as the world’s de facto neutral asset, and Tether’s decision places it in the same conversation as the central banks that have been steadily rebuilding their gold allocations for more than a decade.
Bitcoin’s lag is not a thesis failure
Against this backdrop, Bitcoin’s recent underperformance is understandably uncomfortable for some. After its latest decline, it remains roughly 40% off its 2025 highs, with no clear inflection signal for an immediate trend reversal. This has revived claims that the four-year cycle is still in play, and that Bitcoin’s failure to keep pace with gold and silver undermines its "hard asset" thesis altogether.
Figure 7: Bitcoin remains in a cyclical draw down, highlighting a timing gap relative to the recent strength in gold and silver.
However, this framing misses the context of gold’s thousands of years of monetary history. Gold is deeply embedded in the sovereign reserve framework and tends to move first when confidence in fiscal discipline erodes. Bitcoin, by contrast, is a digitally native bearer asset still working its way into those same institutional frameworks. Its adoption curve is structurally steeper but far less continuous.
The same forces that are propelling gold higher remain intact for Bitcoin and it was even born out of the last systemic crisis for precisely that reason. The Genesis Block’s embedded headline referencing bank bailouts was a comment on exactly the sort of systmeic fragility that has not been resolved. Ergo, verifiable scarcity, neutrality, and resistance to debasement do not lose relevance simply because price action is cyclical.
Hard assets do not compete, they converge
One of the more unhelpful narratives in macro today is that investors must choose between gold or Bitcoin. Those who adopt a more measured approach will, of course, dismiss this for the noise that it is and recognise that, over the long term, both assets have been doing the same job: protecting purchasing power as the denominator steadily weakens.
As seen in the chart below, the U.S. dollar’s decline is the constant in this equation (green line). It is accurate to broaden that statement to include all fiat currencies, even if the dollar remains the focal point given its global reserve status.
Figure 8: Gold and Bitcoin have risen over time against a steadily weakening U.S. dollar, highlighting different expressions of the same long-term monetary backdrop.
Bitcoin cannot match gold's track record of thousands of years playing this role, as currently highlighted by rising central bank demand. At the same time, we now live in a digital world, and gold's analog DNA doesn't come close to digitally-native Bitcoin's suitability for integration into the digital systems of modern markets and ways of life.
So, while they are often framed as adversaries (tribalism is easier than nuance), the reality is that gold and Bitcoin are simply two different expressions of the same response. Gold anchors the old system as it strains, while Bitcoin offers an exit ramp into a new one.
Corrections don’t negate regime shifts
The sharp pullback in metals on January 30 is a reminder that parabolic moves rarely unfold without large corrections. What tends to be overlooked, however, is that the sheer expansion in market capitalisation over the past eighteen months made a large nominal drawdown all but inevitable once momentum stalled.
Against that backdrop, comparisons to 1980 and calls for a prolonged bear market miss what is fundamentally different about this cycle. The policy environment today bears little resemblance to the Volcker era when monetary discipline was reasserted through force majeure. Rate cuts are approaching, debt-servicing costs continue to rise, and the set of credible tools available to restore confidence in fiat has narrowed rather than expanded.
Under those conditions, while further consolidation would hardly be surprising, it remains difficult to identify a macro trend capable of driving a broad, institutional retreat from gold. As the long-term challenge is debasement, the rational response is not ideological commitment to a single asset, but diversification across hard assets—a process the recent moves in gold and silver suggest is already well underway. Bitcoin may arrive later in that sequence, but the direction of travel remains consistent.
So, while talk of an impending "great rotation" from precious metals into Bitcoin and other digital assets is likely premature, the ultimate trajectory is clear: the future will not be fiat, at least not in its current form.
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