Gold Bug: What It Is, How It Works, and Example

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Jason Fernando
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Jason Fernando is a professional investor and writer who enjoys tackling and communicating complex business and financial problems.
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Updated May 24, 2023
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Thomas Brock
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Thomas J. Brock is a CFA and CPA with more than 20 years of experience in various areas including investing, insurance portfolio management, finance and accounting, personal investment and financial planning advice, and development of educational materials about life insurance and annuities.
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Katrina Avila Munichiello
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What Is a Gold Bug?

The term “gold bug” is an expression used to refer to investors who are bullish on gold. Gold bugs promote investment in gold and commonly believe that the purchasing power of fiat currencies will decline due to inflation, expansionary monetary policy, and the rising national debt.

Key Takeaways

  • A gold bug is an individual who promotes gold as an investment.
  • Gold bugs commonly believe that threats to fiat currencies make gold attractive.
  • Gold bugs argue that as gold is priced relative to fiat currencies, gold will appreciate if fiat currency value decreases.

Understanding Gold Bugs

Most gold bugs believe the price of gold will rise if the value of fiat currencies, such as the U.S. dollar (USD), falls. Investors bearish on the long-term prospects of the USD may choose gold. The term “gold bug” does not hold a positive or negative connotation; it refers to an investor convinced that gold will rise in value.

Gold Bug Strategy

Gold bugs see a decline in fiscal health as a sign that the U.S. government will respond to the rising debt burden by effectively devaluing the USD. If the government defaults on the national debt by failing to raise the debt ceiling, the value of the USD may decline in international currency exchange markets. The price of imported goods will rise for U.S. consumers.

Alternatively, expansionary monetary policy may cause inflation to rise. This strategy may negatively affect the wealth and purchasing power of investors and citizens whose savings consist of USD-denominated assets. For gold bugs, investing in gold can be an attractive way to hedge against these risks and profit from potential USD devaluation.

1971

The year that the United States abandoned the gold standard to curb inflation and prevent foreign nations from overburdening the system by redeeming their dollars for gold.

Example of a Gold Bug

Gold bugs argue that the fiat currency system allows governments to engage in fiscally reckless behaviors such as relying on chronic government borrowing to finance persistent budget deficits.

In 2022, the United States had a budget deficit of $1.38 trillion. The U.S. has experienced a fiscal year-end budget surplus, where revenue exceeds spending, only five times in the last 50 years. The national debt exploded from roughly 40% of gross domestic product (GDP) in 1966 to over 100% of GDP in 2022.

The price of gold subsequently increased in the latter part of 2022. Gold pricing changes based on supply, demand, and investor behavior. When investors choose gold and hedge against inflation, they drive up the price of gold. In addition to the value of the USD and market volatility, factors that influence the price of gold include gold production, jewelry demand, and gold reserves.

When there is an economic slowdown, investors seek safe investment opportunities. During these periods, paper money loses value as more is printed, and the supply of gold remains constant. Because gold prices often increase when economic conditions worsen, gold is seen as a safe bet to diversify a portfolio.

What Is a Silverite?

The Silverites were members of a U.S. movement in the late 19th century that advocated that silver should continue to be a monetary standard along with gold.

Why Do Gold Bugs Invest in Gold?

Gold bugs argue that fiat money, or government-issued currency not backed by a commodity such as gold, allows governments to engage in fiscally reckless behaviors such as relying on chronic government borrowing to finance persistent budget deficits.

How Do Gold Bugs Buy Gold?

Gold bugs buy gold in minted coins, bullion or bars, gold stocks, jewelry, mutual funds, and exchange-traded funds (ETFs). Gold investors buy gold online and can even use a 401(k) to purchase gold.

The Bottom Line

A gold bug is an investor who believes the price of gold will perpetually increase. As fear of a recession becomes widespread, gold bugs typically look to invest in gold to hedge against inflation and currency devaluation. The term “gold bug” refers to the most adamant and outspoken among these investors.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. U.S. Treasury Fiscal Data. “What Is the National Deficit?”

  2. Federal Reserve Economic Data (FRED), Federal Reserve Bank of St. Louis. “Federal Debt: Total Public Debt as Percent of Gross Domestic Product.”

  3. World Gold Council. “Gold Spot Prices.”

  4. Teachinghistory.org. “Silverites, Populists, and the Movement for Free Silver.”

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