25 Aug 25th August 2026

Markets Year to Date

This week is all about Gold.

But the story of Gold starts with Treasury Bonds, so we will start there.

The US Treasury issues Treasury Bonds via regular auctions. Investors give them cash and the Treasury gives them a bit of paper that says the Treasury promises to give the cash back a certain time later. This could be 1, 3, 5, 10 or 30 years. During that time the Treasury pays the investor coupons which you can think of as interest.

When they run these auctions, they go to the market and ask the market what rate of interest they want to receive to buy the bonds from the Treasury. The market sets this rate. Not the Treasury.

The money Treasury receives from the bonds goes into its main operating account and pays for things like defence, public services, healthcare etc. Basically you can think of it as the money the Government spends.

Going back 10 years or so, countries around the world were friends.

China made things and sold those things to the US consumer and the US consumer sent US Dollars to China for them. The problem there is at some point the US consumer runs out of money and can’t buy any more goods from China.

So China became the largest investor in US Bonds.

It completed the circle of money.

US consumer buys goods from China. Money flows to China. China buys Treasury Bonds and in doing so, sends that US cash back to America which filters down to the US consumer so they can then buy more goods from China.

But the world is a different place now.

China have been buying less and less Treasury Bonds since about 2014, with a notable decrease coming from 2022.

A famous event happened in 2022. Russia invaded Ukraine in February.

But it wasn’t the invasion that caused this Chinese shift. It was the US and other Western Nations response. They basically seized around $300billion of Russian foreign reserves. Some of which were Treasury Bonds.

The Chinese watched this and realised this massive asset they had been accumulating for decades might actually be worth nothing if the US decided to freeze them out.

So they have been unwinding that asset. Instead they have been buying Gold.

You can even see the big ramp in purchases of Gold from 2022 in the above chart.

If you take a major buyer out of the Treasury Bond market, then there is less demand and when that happens the price of the asset falls.

When you talk about Bonds, you can interchange Bond Prices with Bond Yields. As Bond Prices are 100 – Yields. If yield is 5% then the bond price is 95.0

Take a look at what has been happening to 30yr Bond Yields. (Take a good look at what happened since 2022)

Lastly lets look at a long term Gold chart

That’s the back story and my evidence.

China is buying gold as a reserve asset as an alternative to US Bonds. That is what has caused the huge move in the Gold price in the last couple of years.

It still holds twice as many treasuries as it does Gold, so it has some way to go yet if it is to complete this operation.

It is doing this because Gold can be physically stored inside China and the US cannot take it away from them.

So how do we profit from this idea?

One way would be to buy Gold. GLD is the code for the best ETF.

But, personally I would buy the Gold Miners ETF.

The below compares GLD to GDX using Google’s AI model (much easier than me messing with spreadsheets)

The price of Gold (Blue Line) has outperformed the Gold Minders (Orange Line)

The green line at the bottom shows the ratio between the two. This is the one I like. You can see back before 2008 GDX was much higher compared to GLD. Since then we have had a long-term bottoming process. When these long-term bottoms end, the move can be explosive.

When a move gets underway, short-sellers are forced to cover their shorts by buying. That adds extra buying pressure.

The number of short-sellers in GDX is the highest it has been in almost 10 years. That is a lot of shorts to cover.

During this 10 year bottom formation, the valuation of GDX has come right down. The companies in the index have cut their debt in half and at the same time Free Cash Flow is up almost 10 times

Now, nothing in the above tells me what will happen tomorrow, or next month. But I am convinced a 3-5 year hold will offer very handsome returns.

It is almost certainly going to be a lot better than this guy.

Young Leopold Aschenbrenner was a former OpenAI researcher who decided he was better at picking stocks than he was doing AI research so started an AI hedge fund called Situational Awareness. He got fired by OpenAI in 2024 for alleged informational leaks so wrote a 165 page essay and some wealthly guys backed his fund.

It did well initially. He gained about 42% in 2025. But then he made some classic mistakes and blew up $35billion a few weeks ago before returning what was left to investors.

His mistakes

• Use of leverage
• Too high concentration
• Thinking AI research and stock picking was the same thing.

He got himself short software and long semis. Which worked. Until it didn’t. And because he was using leverage it blew up almost overnight forcing him to close it on his wedding weekend.

So don’t be like young Leopold. Do not use leverage and make sure you add diversification to your portfolio.

Like buying GDX.

Last thing this week. Some humor. History does not repeat, but it does rhyme

The Nasdaq exchange wants to be open 23 hours a day. That would be great for us. Great for them too as more trades means more money for them, so you can see why they want to do it.

Funny thing is, this isn’t the first time they have had this idea.

That was May 27th, 1999. About 1 year before the peak in the Nasdaq and then a subsequent 80% fall.

Warning

Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.