How Gold Is Valued & Why $25k-$55k Makes Sense in a Revaluation Scenario (Uncut) 03-04-2025

How Gold Is Valued & Why $25k-$55k Makes Sense in a Revaluation Scenario | Tavi Costa

Kitco News special coverage of PDAC is brought to you by Gold Mining, Uranium Energy Corp and Uranium Royalty Corp. Hey everyone, welcome back to Kitco News. I’m Jeremy Safran.

We’re coming to you from PDAC 2025 here in wonderful Toronto, Canada. And this is Kitco News’ 15th year covering this leading investment conference. Now my next guest says that this gold rally is a rare convergence of both demand from the eastern and western economies, which again is an uncommon occurrence in modern financial history.

And plus, he sees silver as on the verge of a significant move back to its all-time highs, which have eluded the metal for years and years. Debbie Costa is a partner and macro strategist at Crescat Capital. It’s great to see you, my friend.

Nice to have you back on the show. Thanks for having me. We were talking a little bit about your new notes.

You just put out a very interesting report, I think even this morning, and our producer Anne and I were going through it. And you’re talking about how if we do revalue the gold price, or if we do revalue the gold inventory in the U.S., it could take the price of gold to a crazy level. Now here we are, we’re up 18% year over year.

We had a small correction, some would call it. What are your thoughts? What happens if that happens? The note was more about to put into perspective of history of, you know, I think we talk a lot about calculations of how gold gets value relative to monetary base and money supply. To me, it comes down to the treasury.

How much treasury is outstanding out there, $36 trillion. How much do we own of gold? And you put in that perspective, even market to market, where gold prices are currently, we’re about 2% of those treasuries outstanding. Back in the 70s, I believe we got close to 17% at its peak, and those 70s was really because central banks were accumulating gold at that time, just like today.

The other time was in the 1940s when the U.S. was really getting ready for war. We saw money supply increase, the debt increase, but we’re close to 40% of U.S. gold reserves relative to treasuries outstanding. So I think it’s important to put into perspective of how much we’ve gone away from the anchor of owning a actually monetary metal to put real value into a currency.

And if we’re going to go back to the 17%, it takes us back to $24,000, $25,000 an ounce. Or if we go back to the 40%, it’s close to $55,000 an ounce. And so those are crazy numbers, and I’m not here to say those are price targets or anything like that.

But I think that’s important to, you just said gold had a correction and it’s been going up. And I think it puts into perspective of how much it could be value if we are in a market that we think we’re going to get into. Yeah.

I mean, Tamir, you and I sit down at this conference annually, and even last year we were talking about $2,000 gold. Here we are close to $3,000. I mean, it’s been an exceptional year.

Even with that price, I mean, what do you think is going to happen here? We’ve been hearing about the supply chain. It’s kind of destroyed. I mean, we have a lot of people bringing gold from Europe over to the U.S. Is there a resurgence happening? Yes.

And I would say that finally we’re seeing Western societies participating in this more broadly driven gold bull market that we’re now, you know, before it used to be more Eastern societies. Look, since the global financial crisis, international central banks have been buying gold, you know, like there’s no tomorrow. We’re back to 50-year highs in that front, while the U.S. is still holding its lowest levels of gold reserves in 90 years.

And so clearly that divergence is going to push either the U.S. to start, you know, acting on it and actually changing their policy, which I think is long overdue to accumulate gold, which would be insane. Most people would disagree with that in terms of the potential of that happening. And I do think it’s a real possibility.

Listen to Scott Besson, what he’s been saying about monetizing assets and sovereign wealth funds, of which he didn’t say that he’s going to be buying gold into this. But you know, those things are starting to form, in my view, a framework to potentially start seeing the U.S. finally participating in that market again. So I’m, you know, I think we’re in that turning point in history where some of these figures about U.S. reserves of gold relative to treasuries and all are starting to matter.

And you know, to me, this all goes back to the dollar. We’ve had gold prices moving higher because of international central banks. I think the next leg up is because, kind of like the early 2000s, where the dollar devalued versus other fiat currencies.

I think we’re in that moment right now, of which why I paid so much close attention to the dollar index at this point. Yeah. Yeah.

Another striking point in your report is the comparison between today’s gold backing of the U.S. debt at just 2%, 40% during World War II. I want you to really explain this. I mean, what does this tell us about the fiscal policy? Well, the U.S. is in an interesting position.

You can grow debt as much as you want, you know, in terms of studying back the empires and other reserve currency status that we had in history. You can grow your debt to a substantial amount. What you can’t do is be spending close to 5% of GDP in interest payments and just to service the debt.

And so, ultimately, that creates a prioritization of particularly lowering rates. And so, when you start seeing rates being reduced because of the risk of a sovereign issue, that creates pressure on the dollar. And so, therefore, why, if you look at the 10-year yield and the dollar index, they’re the same thing.

And so, clearly, there is a real push from the administration to lower all rates, not just 10-year, but the Fed funds rates as well, so we can reduce the interest payment to GDP from a 5% level to maybe more of an international level. International levels are running half of that. So, from an interest relative standpoint, that change of interest rates from the U.S. is likely to have an impact on the dollar in a big way.

And look, throughout history, the dollar is now at probably its most overvalued levels in history versus other currencies. It’s funny, nobody, you know, the idea of thinking the U.S. is the cleanest of all dirty shirts was the thought you should have five years ago, not now. Like, this is, we’re at the peak, not at the bottom.

And so, telling that story to me, it’s sort of, you know, reporting things that have already happened rather than the future, which is the role of an investor. So, I’m much more focused on either organic or a coordinated act by central banks to reduce the value of the dollar that then ultimately pushes gold even higher in my view. Yeah, and talk to me a little bit about how we would start to see some of those indications.

I mean, we already have been with currency debasement. But to your point, I mean, we have the most overvalued price of the U.S. dollar, 120 years in your note, it says. There’s, look, there’s so many different ways.

I mean, if we go back in history, there’s two precedents of that. One was 1985, which was the Plaza Accord. The Plaza Accord, we saw a coordinated act across central banks to reduce the value of the dollar to stimulate growth globally.

Now, in the 1930s, we saw something completely different. It was the Great Depression. And 1931, we had a bunch of central banks, or I should say countries, the UK, Japan, Canada, Germany, Austria, they all devalue their currencies versus gold.

They actually broke their gold standard domestically before the U.S. And so, that drove the dollar much higher. Kind of like, I’m not saying that’s what we’re seeing today, but majority of the currencies in the world, the Japanese yen, the euro, the Canadian dollar, they have all collapsed versus the dollar recently. Ultimately, we reach a point in 1933 that the dollar was so overvalued that they tried to get into a meeting in London to see if they could agree on something to promote growth again.

And guess what? Roosevelt left the meeting and said, look, we’re actually going to have to devalue the dollar. Once that happened, the dollar collapsed, and that was sort of the end of the Great Depression. So, I don’t think it’s necessarily exactly the same way.

My point is, we don’t know if it’s an organic or less coordinated act like the 1930s or the 1985 environment. What we do know is that the dollar is at its peak most likely, and that’s the key part of it. So, as an investor, you think, all right, well, I have that as a landscape, what do I do in that scenario? I mean, emerging markets could be a good place, natural resources can be.

It’s sort of a green light to a lot of asset classes that have been ignored for a long time in my opinion. Yeah. And when we’re thinking about the new economic numbers that we’re seeing out of, you know, I was going to say Hollywood, but it is Washington at this point.

I want to talk to you a little bit about what you think this energy first policy will do. Are we going to see the U.S. start to front run some of these policies? Have they realized and woken up to what we’re talking about? Well, I think there has been a big push in natural resources in general, energy specifically. You know, I have a different view than the market, this whole idea that the U.S. can drill as much as they have been saying.

I’ve realized the difference in tone of the administration as well in terms of, you know, this is not going to be a total increase of oil production alone, but maybe it’s energy production. So, it’s including equivalents like natural gas. Oil is not in a place where you can just increase production like that anymore.

I think that those are the years from a decade ago. We’re not in that world anymore. Therefore, why I think oil looks very attractive as an asymmetric trade as well.

But I think that the biggest idea is this push of onshoring and the push of artificial intelligence is taking a new role into this whole demand for natural resources. We have to think about where energy is going to come from. Bloomberg had a good report about data centers being built close to cities that are small and how much that will actually take electricity consumption from those areas.

You know, and you start thinking about where is electricity going to come from. Are we going to need solar panels? I started doing research on that as well because if we do solar panels, you know, what’s the demand for metals in that front? I mean, silver is a major player in that construction of those panels. And so, to me, there are a lot of things.

Two things. One, it’s going to be the building of those tools to come up with electricity consumption, at least to meet the demand. And the other thing is there are countries like South America and Brazil and Argentina, places that actually produce a surplus of electricity and are simply not being used.

Well, maybe those mega cap companies can build their data centers in those areas and use that excess of supply of energy to do their AI analysis and work that they have to do for their business. And so, I think there’s going to be some pushes and uses of other regions of the world that have not been used. And this could be very good for emerging markets.

I want to talk to you about Scott Besin’s recent comments about the potential of a new Bretton Woods agreement and what this would potentially mean. What do you think that would look like? And what would it mean for the gold and dollar? I think that the biggest thing that the administration should be focused on, and I think if I would consider that, if I was running office right now, I would be solely focused on the interest payment to GDP, reducing rates, and trying to restructure the debt would probably be my main goal. And I think, thinking from that, with those lenses, I think that’s really going to be their focus is to try to restructure the foreign debt that we have, which is about one-third of the debt is coming from foreigners.

And so, if they can restructure that at lower rates, it would be a huge win, maybe in exchange for something. And I think there are conversations along those lines. If you listen to things like the Mar-a-Lago Accord, and look, those are things that happened with prior empires or reserve currencies.

When they reached those levels of debt to GDP, and you reach those levels to service the debt, usually, like the UK back in the 1800s, they had to restructure the long-term debt, switch from short-term to long-term, kind of like the US, reduce the rates, and at the same time, create a sinking fund. And maybe that’s what’s happening here. Now, don’t forget this whole idea of austerity, austerity with lowering rates, which is such a combination that usually causes a weaker dollar.

And I hate coming back to that, but that’s why. I mean, it’s kind of the center of everything. So if we’re going to accomplish reducing government spending, if we’re going to accomplish lowering rates, which is kind of the same thing, lowering rates reduces government spending, we’re probably going to see the dollar suffering as a result.

So it’s an issue. We’re also seeing a concerted effort for people to be buying T-bills. The Treasury, it’s not very popular right now.

Yeah. Well, you know, I find it interesting. I mean, this Scott Batson recent interview, I think was at Fox News with, anyways, I don’t remember the name of the reporter, it was Larry Kudlow, actually, and it was an interesting interview where he emphasized that since Trump took office, we’ve seen five candles in a row on the weekly candles of declines in the 10-year yield.

Well, you know, what he didn’t comment is that the dollar has done exactly the same, you know. And so I think that there’s a combination of that, but the focus of the administration is lowering costs and rightly so. But again, the other side of it that I was trying to go is that austerity also is likely to create a deceleration of growth.

Spending has been the engine of growth of the U.S. economy. So you have to think about it. Well, you know, back in the days, what took us to the valuations we have in equity markets right now? Used to be NERP, lower rates, right? Basically a zero, in some moments negative.

Then we had money printing. We had, you know, we’re running a 7% in average annually of deficit to GDP on the fiscal side. Now you’re taking away, now rates are completely different.

You don’t have money printing. You actually have the balance sheet actually shrinking globally and in the U.S. Money supply has been shrinking as well. And then on top of it, you’re telling me they’re going to cut spending on the fiscal side.

How do you, and multiples are actually a little bit more expended than they were, you know, two years ago. So I’m not sure what are the pillars that will support this equity market where it is. I feel like that’s, that’s got to give.

Yeah. So the last correction we saw, obviously not enough. I mean, in this latest report, you make a strong case for kind of restructuring investments from this tech space and NVIDIA over to commodities, you know, merging markets.

Talk to me a little bit about this strategy. Well, I think there’s a major rebalancing that we’re likely to see. You know, MSCI world index has 70% weight on the U.S. equities.

At some point that money has to go somewhere else. When you have that green light, I said about the dollar in yields, you tend to see the rest of the world do very well. When you reach that deal, Japan saw an inflation or I should say an inflating of assets that reached a bubble, one of the largest bubbles in history, real estate and stock market.

And I think we can see that outside of the U.S. That money, which has been solar, you know, Brent Johnson has talked about this in the right way about how we’ve been sucking all the dollars and of the world and basically, you know, inflating valuations of companies. I think we’re at the end of that and I don’t think at the beginning of it. And so, you have to put your hat on, all right, well, what is that rebalancing going to look like? Where is the capital going to flow into? And I can’t help but look at, you know, particularly South America, I think natural resource companies will do very well.

You’re going to have value equities or value stocks versus growth is going to be an environment for that as well. And so, you know, those places have been ignored for a long time, valuations. I think in my writing, I had a piece of a CAPE ratio, Secretly Adjusted PE Ratio.

U.S. is running a 33 multiple, emerging markets are running, you know, a low single multiple, which is, you know, remarkable. That differential of, you know, American exceptionalism from a multiple standpoint to me is completely inevitably going to change. And U.S. stocks alone, CAPE ratio is like 60.

So I think something’s got to give, as I said, and I think the performance of those parts of the markets are due to worsen quite significantly, in my view. And insiders have been selling. And then we, of course, have, you know, somebody like Warren Buffett, who has the strongest cash position ever, and he’s not talking about why.

So is it going to be, you know, redeploying the capital? When does that come? And is it going to be going into these types of plays? No, Warren Buffett, I’ve been looking at, of course, studying him as much as I can. But also, he reminds me of Senzel a lot, Senzel, who passed away, I think, last year, two years ago, and a person that I admire a lot as a, you know, as an investor and as a person as well. And, you know, his book is amazing for those who haven’t read it.

But the point is, he was known for divesting very early, two to three years before a peak of the market. And then, you know, when things would get, you know, finally in a correction mode, he would then start stepping in. And I think Buffett has a very similar style.

They’re not perfect market timers, and they don’t mind about it. You know, that’s the key for, I think, really creating wealth over a history of time. I think young investors have kind of forgotten that a little bit because of how returns have been unusually high.

And that’s not usual, you know, for throughout history. But think about it. The cash balance that Warren Buffett has is about five times the size of his Apple position.

Apple is a large position for them, but still, you know, they’ve got five times that amount in cash. So $70 billion or so sitting on Apple, you’ve got $300 plus billion in cash. If anything, if Apple gets cut in half, you know, they can use their cash easily.

So financial position, I don’t think they’re in a very interesting and attractive position to take advantage of the market. Are they waiting for a dip? Are they waiting for another 2007? I think, I don’t think he’s really, you know, predicting a necessarily a large recession or a 50% correction. I think he’s just looking for what is cheap out there to act on.

You know, a value investor is usually not looking for those timing indicators, but rather looking for times when markets are in fear moments and, you know, and people are not greedy anymore. And I don’t think we’re there. You know, clearly people are, we’re definitely seeing more greedy people than fearful.

And so, you know, I think that’s reflected on valuations. And so I don’t know if he’s necessarily timing, you know, a big move. I think he’s just timing, you know, a valuable opportunity to deploy capital of which, you know, I try to do the same.

And I think hopefully smart investors, at least savvy investors tend to do the same. And so, yeah. What do you think about the value of the silver market at this moment? I mean, we’ve been giving so much attention to the gold market.

We’ve been seeing these all-time highs. We know that that price hasn’t necessarily hit highs, of course. We’re just waiting for it.

Talk to me about the opportunity here in this environment. You know, I can only tell you about sentiment in a way of every time I started talking this last few days about silver, people said, yeah, well, we’ve been talking about this for a long time. Those are usually the times you want to pay attention to.

Silver has been acting short term in a very positive way. Every time we see a sell-off in gold, silver has been acting better. Some of these sell-offs have been pretty large sell-offs in gold prices that we don’t tend to see.

And silver has been behaving very well. Gold miners have been behaving incredibly well, too. So I believe we’re entering in that moment where the derivatives of gold are starting to look very, very attractive near term.

It wouldn’t surprise me if we see a jump in silver prices to finally close at a quarterly high in terms of the candle. A quarterly high would be around 40. And I know it got to 50, but 40 would be a big jump where we are, not in percentage terms, but psychologically speaking.

If you look at the cup and handle that we have historically that would finally close that cup and handle and potentially show that we would see a breakout, this would be huge. And so I think we’re very close to that and it wouldn’t shock me at all if it happens in a month. Nobody has the answer.

Nobody has a crystal ball. But as an investor, I’ve been accumulating for a very long time. I’ve been thinking about things that have leveraged in silver prices.

We recently made an acquisition of the fourth largest, now the fourth largest silver mine in the world. Very few people know about it. It’s a private company.

And to me, that’s really the opportunity is to find leverage on silver prices when people are not paying attention to. And keep in mind, why the derivatives of gold? The mining companies are finally making money in a degree that we haven’t seen in a long time. And look, the cost structure of most miners is at least half of what the gold price is.

So gold prices at, you know, $2,900 or so, their cost is around $1,400. Newmont, $5 billion in free cash flow this year. It’s insane.

I mean, most of the numbers show that you have a pretty steep increase in free cash flow. Now, historically, when you have that, what you tend to see is that exploration stocks are also about to see something because the M&A starts to occur. We’ve seen M&A across more mid-tier and seniors.

But I do think that’s going to come down to the bottom. And it’s going to be really interesting, let me put it that way. I do think there’s a lot of explosive opportunities in the exploration market, which tends to be the market that moves the most when you get into a bull market of the derivatives.

So would you be positioning into the small juniors that have potential as opposed to the large caps? Well, it’s a bit self-promotional, but I’ve been positioning for that, which takes time. Those are very illiquid things, and you have to, you know, prepare yourself in terms of how to deploy capital in those things for a long time. But for the last two to three years, we’ve been putting money into this.

Part of this strategy of which, yeah, we hit some major discoveries, some of the most successful discoveries we’ve been involved in the last three years. But I think that all boats are likely to be risen here soon. So it’s going to be not just the successful stories, but we’re likely to see other things moving higher, too.

Yeah, interesting. Tavi, before I let you go, we were talking a little bit about that gold to silver ratio and its divergence, and it’s been that way for quite a long time. Do you think that’s the new norm? Do you think that it’ll catch up again? I mean, it almost feels like it’s the new norm.

Pay attention. When people start saying that that’s the new norm, that’s when you’re about to see the change because that’s not the new norm. I mean, look at history.

It’s all you have for a context and reference. And it would shock me if in five out of 10 years, shock me, that’s the new norm. And you know, it’s all I can do is bet on history.

And look, silver is truly constrained from a supply standpoint. You look at Mexican production, Peruvian production, and then you look at the demand side, increasing in many fronts. I think we’ve had a lesson, a short crash lesson about gold for those that have dismissed the metal, especially young crowds are finally learning a lesson about why we buy a monetary metal like gold.

What they are about to learn, in my view, is really a silver lesson that I think it’s going to be even more important in terms of speculation, in terms of, you know, what silver tends to do in a true bull market for gold. And we’ve been hearing the supply and demand dynamics about silver, the squeeze for many, many years. But this is the first time at the conference I’ve actually been hearing about the industrial side being squeezed.

Is that what you’re seeing? Well, I’m not sure I would call it necessarily, it could be a squeeze. I think maybe that might be, for me, perhaps an overstatement, a little bit of the situation. What I think is happening, if you take, for instance, industrial stocks, and you chart with silver, and, you know, here’s something for somebody to do if they would like to.

It’s the same chart. And they’ve been trading very closely for the last two to three years. So that means that silver is reacting, you know, positively with what’s been happening with the industrial side of the economy.

And that’s just one side of it. What we haven’t seen yet is that monetary side of it when it kicks in. And, you know, potentially why you’re seeing that, you know, 90 ratio.

That 90 ratio changes when that happens. And I think we’re getting close to that. All right, Tabe Costa, macro strategist and partner over at Crescat Capital.

I recommend everyone to go and read that note. Great to see you again, my friend. Thank you.

Best of luck. Yeah. I’m Jeremy Saplin for all of us here at PDAC at Kitco News.

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