What’s Driving 2025’s Gold Rush? & The Incredible Risk of Perpetual Futures Trading

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0:01:36 Welcome to Prof G Markets.
0:01:37 I’m Ed Elson.
0:01:39 It is September 25th.
0:01:41 Let’s check in on yesterday’s market vitals.
0:01:46 The major indices declined, with tech leading the drawdowns for a second day.
0:01:51 Nvidia fell another 1% on growing skepticism of its open AI deal.
0:01:56 Intel was an outlier, rising more than 6% on news it’s seeking an investment from Apple.
0:01:58 Apple shares fell in response.
0:02:03 Meanwhile, Treasury yields rose ahead of GDP and jobless data, due this morning.
0:02:09 And finally, oil prices hit a seven-week high, as a surprise drop in US crude inventories
0:02:11 showed that supplies are tightening.
0:02:14 Okay, what else is happening?
0:02:18 Gold is on its strongest bull run in decades.
0:02:23 The asset is up 40% year-to-date, its best performance since 1979.
0:02:26 You compare that to the S&P, up 13%.
0:02:28 The Nasdaq, up 16%.
0:02:30 Or even Bitcoin, up 21%.
0:02:38 The metal hit its 37th record high of the year on Wednesday, opening near $3,800 an ounce.
0:02:41 Despite these high prices, investors are still not deterred.
0:02:47 70% of institutional investors plan to increase their gold holdings, and 95% of central bankers
0:02:50 expect gold reserves to increase this year, too.
0:02:54 Put another way, the gold rush is not slowing down any time soon.
0:02:58 So, we wanted to know, what is the obsession with gold right now?
0:03:01 Why are investors in such a frenzy?
0:03:04 Why are prices skyrocketing right now?
0:03:09 So, to help us answer these questions, we are speaking with Robert Hayworth, Senior Investment
0:03:12 Strategist at US Bank Wealth Management.
0:03:17 Robert, thank you so much for joining me on Prof G Markets.
0:03:18 Great to be with you, Ed.
0:03:21 So, gold is absolutely ripping.
0:03:24 One of the best-performing asset classes of the year.
0:03:27 Let’s just start with a very simple question.
0:03:29 Why is it soaring right now?
0:03:31 Yeah, well, and you went back to it.
0:03:35 You mentioned it earlier that 95% of central bankers expect to buy more.
0:03:39 And that’s what we’ve been seeing over the last three years, is it’s really central bank
0:03:43 buying that is driving this bull market in gold at this point.
0:03:49 If I think about the very traditional drivers of past gold bull markets, we would have thought
0:03:53 about maybe low and falling real interest rates.
0:03:54 That’s not happening.
0:03:57 Real interest rates are at decade highs.
0:04:00 We may think weaker U.S. dollar.
0:04:03 Yes, the U.S. dollar is weak, but not particularly soft, right?
0:04:06 It’s not explaining this.
0:04:09 And then lastly, we might think about inflation pressure.
0:04:15 But as we know, inflation is down from a 9% U.S. consumer price inflation rate in 2022
0:04:17 to 3%-ish right now.
0:04:20 So, it’s not that inflation is accelerating.
0:04:27 It has everything to do with central bankers really looking to rebalance that reserve asset
0:04:28 portfolio that they have.
0:04:33 Why would a central bank want to increase their gold holdings?
0:04:36 I mean, what is the incentive behind that?
0:04:41 Yeah, and certainly outside the U.S., I think we’d highlight a couple.
0:04:48 So, one, when you compare, say, China’s central bank holdings to the U.S. central bank holdings,
0:04:48 right?
0:04:55 U.S. has about 70-plus percent of its reserves actually in gold, not in other foreign currencies.
0:04:57 China has about 7%.
0:05:03 So, they may want to get somewhere closer to the rest of the world in terms of the mix of
0:05:04 assets they hold.
0:05:08 That’s a lot of buying that would have to happen, but that could be part of it.
0:05:15 Two, they may just not want to be as dependent upon other countries’ reserve currencies and
0:05:18 bond markets to own those assets.
0:05:22 So, they may want to diversify away from those countries because they can better control their
0:05:27 gold holdings than they can, say, the value of a German Bund, right?
0:05:29 They just, they can’t control that as well.
0:05:33 And then, three, right?
0:05:38 We’ve seen a significant sanctions regime in the last, since Russia, really since Russia invaded
0:05:39 Ukraine.
0:05:45 And holding gold is a way to get away from some of those sanctions, right?
0:05:52 To not be dependent upon global foreign currency transactions for your holdings and your reserves.
0:05:56 So, there’s some reason for global central banks to consider this, although it’s getting more
0:05:58 expensive day by day.
0:06:00 Do we know why it’s happening now?
0:06:04 I mean, these are very macro issues that we’re dealing with.
0:06:11 And it seems striking that 2025 is the year that everyone suddenly decided to double down
0:06:13 on gold, or at least central banks did.
0:06:18 What is happening right now in 2025 that is causing this?
0:06:22 Yeah, and what we’re really seeing is more of a technical breakout in gold, where we don’t
0:06:24 see evidence that central banks are buying yet.
0:06:28 We’re seeing some evidence that speculators are actually pushing this up.
0:06:30 ETF holdings are moving higher.
0:06:36 If we look at the commitments of traders data from the CFTC, right, we’re seeing more futures
0:06:38 demand coming into the market.
0:06:42 So, it’s really speculatively driven that at this point we don’t, and it takes a long leg to
0:06:46 see what central banks are buying to know if that’s really kicking it off.
0:06:51 This is really a trend that started with the Russia-Ukraine conflict and Russia looking
0:06:58 to change its holdings into more gold and away from currencies like the euro and the U.S.
0:07:01 dollar, where they might be under sanctions, right?
0:07:04 And that’s just kind of stacked on top.
0:07:09 I think the second speculation we might have around what’s driving central banks to do this
0:07:15 today is some concern about the U.S. fiscal situation, some concern that at some point
0:07:22 our deficits may be pushing treasury issuance much, much higher, kind of devaluing the dollar
0:07:26 and undermining the holdings these countries have of U.S. treasuries.
0:07:29 So, they may be looking to diversify away from that.
0:07:36 Yeah, my understanding of gold is that it is sort of the doomsday asset, or maybe call it
0:07:37 the safe haven asset.
0:07:43 When there is financial uncertainty in the world, gold is a good place to park your money
0:07:46 into, or at least that is the theory.
0:07:51 And it sounds like you made the point earlier that, you know, the inflation rate right now
0:07:58 relative to 2022 as an example isn’t that high, but perhaps there are larger concerns about
0:08:02 the dollar structurally and over the long term.
0:08:09 And I guess my question would be, to what extent is just macro uncertainty around the world playing
0:08:11 into this run-up in gold prices?
0:08:18 I think macro uncertainty is helping, and it’s macro uncertainty in a constructive liquidity
0:08:19 environment, right?
0:08:29 So, meaning it’s not like 2008, 2009, where there was a rush to cash, and gold got caught
0:08:30 up in that, right?
0:08:33 Gold was not a safe haven if we think about the global financial crisis.
0:08:38 So, gold isn’t always a safe haven, particularly if there’s a liquidity crisis around the world
0:08:40 where the only thing that matters is cash.
0:08:45 So, I think the constructive element today is people are looking for safe havens, but there
0:08:51 is still ample liquidity in the system with the Federal Reserve now returning to cutting
0:08:52 interest rates.
0:08:54 They did 100 basis points last year.
0:08:58 They’ve started with another quarter point cut this year, probably a couple more to come.
0:09:00 The European Central Bank has been cutting rates.
0:09:02 Bank of England has been cutting rates.
0:09:07 So, we’re adding back to liquidity in the system, which I think is also helping these safe
0:09:09 haven flows into gold at this point.
0:09:15 So, I would just highlight it’s a safe haven as long as the liquidity situation remains constructive.
0:09:22 One thing I’ve read, and I’d be interested to get your perspective on this, I’ve read that
0:09:29 one of the things that might be contributing to this, as you say, inflation risk, but specifically
0:09:32 the threat to the Federal Reserve’s independence.
0:09:38 And this has been a big topic recently, the idea that the Federal Reserve might be losing
0:09:44 its independence and maybe it would, in some scenario, bend to the will of an administration
0:09:47 that is more interested in the short term.
0:09:52 And perhaps that might be contributing to this flock to gold.
0:09:54 I’m wondering if you think that that is right.
0:09:56 Do you think that that is contributing to this at all?
0:09:58 I think it’s early, right?
0:10:02 I certainly can’t speak to every speculator and what they’re buying today and why they’re
0:10:02 buying.
0:10:03 Right.
0:10:04 But I think that’s early.
0:10:09 Where we’d expect to see that first show up is one in inflation expectations.
0:10:14 And what we’re seeing in the Treasury inflation-protected security market today is real interest rates
0:10:17 are holding in there around one and three quarters percent.
0:10:21 Inflation expectations for the next 10 years are well anchored at two and a half percent.
0:10:25 So we’re not seeing those inflation expectations move higher.
0:10:32 And that’s typically what you would see in a scenario where you think the Fed is losing
0:10:36 its independence is inflation expectations would really start to creep higher.
0:10:40 Real interest rates would probably start to creep higher to put that inflation premium
0:10:40 in there.
0:10:45 You’d probably see long-term 10-year Treasury rates start to move higher as well.
0:10:49 And that’s where we’d maybe say, yes, now investors may be looking to gold to get some
0:10:51 defense against that.
0:10:56 But the Treasury market really today is still well anchored with that 10-year Treasury, you
0:11:00 know, just above 4 percent at 4.1, 4.13, right?
0:11:04 So the markets, the financial markets are really staying well anchored.
0:11:07 So it’s probably early to say that gold is worrying about that.
0:11:10 But it may be on the minds of some speculators, certainly.
0:11:18 Just sort of stepping back here, if gold is, you know, a hedge against risk more generally,
0:11:20 certainly geopolitical risk.
0:11:24 That’s what we saw with the Russia-Ukraine conflict.
0:11:29 What does that say to you as an investor in general?
0:11:35 Is that cause for concern when you see this level of a run-up in gold?
0:11:40 Is that a reason to think that we should be worried about something or that there is something
0:11:43 afoot, maybe, that the price of gold is trying to tell us?
0:11:46 That’s not our view just yet.
0:11:48 But it is something we’re paying attention to.
0:11:53 For us, we’d really look back to the 10-year Treasury as a key indicator of how is the market
0:11:54 interpreting risk.
0:11:59 And then we’d look at P.E. multiples on equities maybe as a secondary indicator.
0:12:05 And what we’re seeing in the equity market, for example, is solid earnings growth, forward
0:12:09 earnings expectations, and fairly rich valuations, meaning high P.E. multiples.
0:12:14 So the market’s not worried, really, about a slowdown at this point.
0:12:17 They are worried about some other ancillary risks.
0:12:22 And you have this kind of exogenous factor of global central banks adding to their gold
0:12:23 reserves, right?
0:12:28 If we look back, we had solid performance in gold in 2023 and 2024.
0:12:39 And as I mentioned earlier, if I think about dollar weakness, rising inflation, and falling
0:12:40 real interest rates, right?
0:12:43 None of those things were factors in 2023 and 2024.
0:12:47 It was really just global central banks buying, pushing that price up.
0:12:51 And that seems to be what’s really still most at play here.
0:12:58 But we’ll be watching some of those other underlying indicators, really, to see if we should become
0:13:03 worried that gold is at that harbinger in the night at this point.
0:13:13 J.P. Morgan is forecasting that gold prices could pass $4,000 per ounce by mid-2026.
0:13:18 Some others suggesting that it could happen by the end of the year.
0:13:23 If you’re willing, I just would love to know, do you think that’ll happen?
0:13:25 Do you have any predictions on gold prices?
0:13:29 Do you think we can expect that it will continue to rise through the rest of the year?
0:13:33 Yeah, we don’t maintain a specific price target on gold, but I would say the trends are certainly
0:13:35 there to make that happen.
0:13:41 And the key factor being, are global central banks following through with those plans to add to
0:13:46 their gold reserves, which, right, we’ve seen that happens kind of in retrospect.
0:13:51 But if they do follow through, right, it would be very easy to push gold higher, right?
0:13:56 I think the challenge would be if they don’t follow through, we may see some of the speculators,
0:14:00 particularly in the futures market, have to back off of their positions, right,
0:14:03 if we don’t see some follow through from global central banks.
0:14:08 All right, Robert Hayworth, Senior Investment Strategist at U.S. Bank Wealth Management.
0:14:12 Really appreciate your time and thank you for joining us on the show.
0:14:12 Thank you.
0:14:13 It was fantastic to be here.
0:14:20 After the break, a look at a new derivative in the crypto industry.
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0:17:49 A new derivative has taken the crypto world by storm, a derivative known as the Perpetual
0:17:51 Futures Contract.
0:17:58 According to a recent analysis, Perpetual Futures, otherwise known as Perp Futures, now account
0:18:02 for roughly 70% of all Bitcoin trading volume.
0:18:09 Put another way, trading Perpetual Bitcoin Futures is now more popular than trading Bitcoin
0:18:09 itself.
0:18:12 Now, two questions you might be wondering.
0:18:16 One, what is a Perpetual Futures Contract?
0:18:18 And two, why does any of this matter?
0:18:21 Well, let’s start with the first question.
0:18:22 What is it?
0:18:26 You’ve probably already heard of regular futures contracts.
0:18:34 This is an agreement traders make to buy or sell an asset at a predetermined price, at a predetermined
0:18:35 date in the future.
0:18:42 In some cases, it’s used for hedging, but in many cases is used for speculation, because
0:18:48 with futures, you can lever up your bet and potentially boost your returns, which means there’s more
0:18:51 upside if you’re right, but also more downside if you’re wrong.
0:18:56 Now, with Perpetual Futures, the dynamic is different.
0:19:03 With Perpetual Futures, there is no predetermined price and there is no predetermined buy or sell
0:19:10 date, which leaves you with a risky financial derivative that is tied to, well, not much at
0:19:10 all.
0:19:17 The contract is purely priced on whether the underlying asset, in this case, Bitcoin, will go
0:19:19 directionally up or down.
0:19:21 If it goes up, you get boosted returns.
0:19:24 And if it goes down, well, you’re wiped out.
0:19:27 Now, why are people trading these things?
0:19:29 Why are these Perp Futures so popular?
0:19:32 Well, a big part of this is leverage.
0:19:38 With Perp Futures, you get access to much higher leverage than you would with regular futures,
0:19:40 i.e. you get to borrow more.
0:19:45 Gemini, for example, offers up to 100 times leverage outside the US.
0:19:49 An exchange called Bybit offers up to 200 times leverage.
0:19:52 This allows traders to take on significantly more risk.
0:19:57 But it is, of course, a completely irresponsible amount of leverage to take on.
0:20:00 In most cases, it would lead to financial ruin.
0:20:07 By the way, this is why these massive levels of leverage are actually illegal in the US.
0:20:12 But that leads us to the second reason Perp Futures are so popular, and that is they are
0:20:13 not really regulated.
0:20:20 In the US, there are still no codified rules around exactly how exchanges are allowed to offer
0:20:22 these Perpetual Futures contracts.
0:20:29 But that is why most of the action is happening on foreign exchanges, exchanges like Binance and
0:20:32 Bybit and OKX.
0:20:39 The average daily trading volume on these platforms is roughly $30 billion in Bitcoin Perp futures.
0:20:46 In fact, Binance once recorded $80 billion in these Bitcoin Perp transactions in one day.
0:20:53 And if you want to get access to that in America, well, all you need to do is download a VPN.
0:20:58 Now, the other question becomes, why are these exchanges even offering these contracts?
0:20:59 And the answer is quite simple.
0:21:01 It’s money.
0:21:03 We won’t get too into the weeds here.
0:21:10 But unlike regular options where the leverage is supplied by the exchange, in the case of Perp
0:21:14 futures, the leverage is actually supplied by the trades of other traders.
0:21:20 So the gains of one trader, those are funded by the losses of another trader.
0:21:24 And all the exchange does is take a cut of each transaction.
0:21:31 So it’s a phenomenal business for the exchange, which is likely why many of these American exchanges
0:21:33 are now pushing for it more and more.
0:21:45 So what we have here is an incredibly risky trade that is way over leveraged, highly unregulated and also becoming exceptionally popular.
0:21:49 Now, in the world of crypto, that probably isn’t that surprising.
0:21:51 We know that crypto is a casino.
0:21:57 We know about Dogecoin and Fartcoin and Cumrocket and all of these meme coins, these coins that
0:22:02 are no different from playing blackjack or buying a lottery ticket.
0:22:04 We know that it’s mostly just gambling.
0:22:20 But that is why I will bring you back to that first stat we mentioned, which is that Perp futures now make up 70%, not of crypto trading volume, not of overall crypto volume, but of Bitcoin trading volume.
0:22:21 Bitcoin.
0:22:26 I mean, this is the cryptocurrency that is known as the safe crypto.
0:22:28 This is the institutional crypto.
0:22:36 This is the crypto that was endorsed by BlackRock and Fidelity and Franklin Templeton and even the US government.
0:22:42 70% of the trading volume of that cryptocurrency is perpetual futures.
0:23:01 So, for all of the talk that we hear about Bitcoin becoming the next gold or the next building block of the global economy, what we have not heard much about is the method by which this cryptocurrency is traded for the most part.
0:23:05 But now we know it is perpetual futures.
0:23:13 And the question is, do we think that that is investing or do we think that that is gambling?
0:23:18 And for us, we think the answer is pretty obvious.
0:23:22 For us, this is, in no uncertain terms, a casino.
0:23:27 Okay, that’s it for today.
0:23:32 This episode was produced by Claire Miller, edited by Joel Patterson, and engineered by Benjamin Spencer.
0:23:34 Our associate producer is Alison Weiss.
0:23:39 Our research team is Dan Shalon, Isabella Kinsel, Kristen O’Donoghue, and Mia Silverio.
0:23:42 And our technical director is Drew Burrows.
0:23:45 Thank you for listening to Prof G Markets from Prof G Media.
0:23:46 I’m Ed Elson.
0:23:51 If you liked what you heard, give us a follow and join us tomorrow for our conversation with Mark Cuban.