Luke Gromen, founder of Forest for the Trees Capital, has emerged as one of the most prominent voices arguing that global financial markets are undergoing a fundamental transformation. One that he characterizes not as a temporary “debasement trade” but as a secular trend that could reshape wealth preservation strategies for generations. In a recent extended interview, Gromen outlined his thesis that gold, and potentially Bitcoin, represent essential hedges against what he views as an inevitable erosion of fiat currency purchasing power driven by unsustainable fiscal dynamics in the United States and other Western economies.
Beyond the Debasement Trade: A Secular Trend
Gromen takes issue with the common characterization of recent gold price strength as merely a “trade”, a temporary phenomenon that investors should time carefully. Instead, he argues that what markets are experiencing represents a fundamental, long-term shift in how wealth is stored and protected globally. “When people call this a trade, I think in many cases they are thinking that it’s something short-term, an aberration in 2025 where gold is up 60% on the year like it’s a trade,” Gromen explains. “It’s just a trendy thing that some traders, some investors are doing. It won’t last.”
His perspective differs sharply from this view. Gromen contends that the United States fiscal situation has deteriorated to a point where maintaining the dollar-centric monetary system that has prevailed since the 1970s has become incompatible with American strategic interests, particularly regarding national security and manufacturing competitiveness with China. According to his analysis, this creates a structural, long-term driver for alternative stores of value like gold.
To illustrate his point, Gromen references the performance of gold in other currencies that have experienced extended periods of fiscal stress. He points to gold priced in Indian rupees since 1985 and gold priced in Brazilian reals since 2000, both of which show relentless upward trends over decades despite periodic corrections. “Am I saying gold’s never going to dip again? No, of course not,” he acknowledges. “What I’m saying is that the most important thing is to look at the fiscal situation of the US and ask yourself, is it really the same as the US in 1980, as the US in 1970, as the US in 1960? It’s not even close.”
The Historical Parallel: Why This Time Isn’t Like 1980
A central pillar of Gromen’s argument involves challenging what he views as a flawed assumption held by many American investors: that the current period will resolve similarly to the late 1970s and early 1980s, when Federal Reserve Chairman Paul Volcker raised interest rates dramatically to break inflation, subsequently causing gold prices to decline from their peaks.
Gromen argues this comparison fails because the United States fiscal position has deteriorated fundamentally since that era. Volcker raised the federal funds rate to 15 percent to combat inflation, a move that was politically and economically feasible at the time. Today, according to Gromen’s analysis, even raising rates to 6 percent would cause severe dysfunction across Treasury markets, housing, and equities. Something he argues has been demonstrated empirically multiple times in recent years when long-term rates approached 5 percent.
Particularly notable in Gromen’s framework is his citation of analysis from John Welch, a former Dallas Federal Reserve economist, who wrote in 2023 that American fiscal dynamics reminded him of Brazil around the year 2000. A period characterized by what economists call “fiscal dominance,” where government debt burdens become so large that monetary policy becomes constrained by the need to keep debt service manageable. “That to me was probably the best Fed call of this decade so far,” Gromen states, suggesting that this parallel provides a more appropriate framework for understanding current dynamics than comparisons to 1980s America.
Central Bank Reserve Shifts: A Structural Change
One of the most significant data points supporting Gromen’s thesis involves the composition of foreign central bank reserves. A chart that has circulated widely shows that for the first time since 1995, gold has surpassed United States Treasury securities as the dominant reserve asset held by foreign central banks. Prior to 1995, gold held this position, but during the three decades that followed—coinciding with the post-Cold War era of American geopolitical dominance—Treasury securities became the preferred reserve asset globally.
According to Gromen’s interpretation, this reversal reflects fundamental geopolitical shifts rather than temporary market movements. He argues that two conditions would need to be satisfied for this trend to reverse: either the United States would need to be willing to offshore its defense industrial base to China (which he views as strategically untenable), or China and Russia would need to become willing economic vassals to the United States, accepting negative real interest rates on Treasury holdings while facing the constant threat of asset freezes or sanctions.
Since Gromen views both conditions as having essentially zero probability of being satisfied, he concludes that the shift toward gold in central bank reserves represents a permanent structural change. “Treasury reserves are never rising again globally,” he states. “Why would you put your money in treasuries?” This perspective suggests that the decades-long accumulation of Treasury securities by foreign central banks, which helped finance American fiscal deficits and kept borrowing costs low, has fundamentally ended.
The Path Not Taken: Revaluing Gold to Address Debt
Gromen outlines what he views as an optimal but politically difficult path for addressing American fiscal challenges: dramatically revaluing the gold held by the United States Treasury. Currently, American gold reserves are valued on the government’s balance sheet at $42.22 per ounce, the price established when the United States abandoned the gold standard in 1971. This accounting convention has persisted for more than five decades even as market prices for gold have increased more than one hundredfold.
According to Gromen’s calculations, if the United States were to revalue its approximately 8,100 tons of gold holdings to $10,000 per ounce, it would create $2.5 trillion in the Treasury General Account. At $20,000 per ounce, the figure would reach $5 trillion, just enough, he notes, to purchase the entire long end of the Treasury yield curve. The mechanism for this would involve the Treasury Department directing the Federal Reserve to revalue gold reserves, which would mechanically create deposits that could be used for debt reduction or other purposes.
Gromen argues this approach would serve multiple American strategic interests: it would strengthen the dollar relative to other currencies through gold backing, encourage Chinese currency appreciation (a long-standing American policy goal), improve Chinese consumer balance sheets and domestic consumption (reducing trade imbalances), and provide fiscal space for reshoring critical manufacturing capabilities. However, he acknowledges this would require political leadership to take what he calls “the big bath”, openly acknowledging fiscal realities and making a dramatic policy shift rather than attempting incremental adjustments.
His concern is that with each passing month that such action is not taken, the probability of a disorderly rather than orderly transition increases. “Every day that the administration does not take its medicine and just do a big bath… their odds of success goes down and down,” he warns.
Practical Implications: Physical Gold Versus Paper Gold
For investors considering gold exposure, Gromen draws important distinctions between different methods of ownership. He categorizes gold investments into several types: fully-reserved ETFs like GLD (which he believes hold the physical gold they claim), gold futures (which involve leverage and potential for cash settlement), and unallocated gold (which represents credit claims on gold rather than ownership of specific bars).
While Gromen expresses confidence that major gold ETFs are legitimate and hold their stated gold reserves, he raises concerns about what might occur during a genuine monetary crisis. His worry centers not on the ETF managers themselves, whom he views as honest, but on potential government actions during extreme stress. “In a real crisis, it becomes a political question,” he explains. “Who’s going to get that gold? The Saudis, the Russians, the Chinese, or you, Mr. retail GLD holder?”
This concern leads Gromen to recommend that serious investors hold physical gold in allocated accounts at independent vaults outside the banking system, despite the additional complexity and cost this entails. He acknowledges this may seem excessive or paranoid during normal times, but argues that the entire point of holding gold is protection during abnormal times, precisely when such distinctions might matter most.
For smaller investors, Gromen suggests purchasing physical gold coins like American Gold Eagles or Canadian Maple Leafs, which can be stored personally and sold to dealers with minimal reporting requirements for transactions under certain thresholds. He frames this not as tax evasion advice but as information about existing rules that investors can consider in their planning.
Portfolio Construction for Uncertain Times
When asked to provide concrete portfolio guidance, Gromen references advice attributed to Jacob Fugger, reputedly one of history’s wealthiest individuals, who recommended allocating wealth 25 percent to gold, 25 percent to cash, 25 percent to real estate, and 25 percent to productive assets including equities. Gromen notes this framework closely resembles Ray Dalio’s “All Weather Portfolio” approach and suggests it remains relevant for investors navigating current uncertainties.
Within this framework, Gromen recommends that the gold allocation might include some Bitcoin, with the proportion depending on age and volatility tolerance. Younger investors might hold more Bitcoin relative to gold, while older investors might favor gold more heavily with only a small Bitcoin position. For real estate, he suggests focusing on productive assets like farmland or timberland rather than purely speculative holdings. For equities, his current preference favors industrial companies and commodity-related businesses over what he views as frothier technology valuations.
Notably absent from Gromen’s recommended portfolio is any significant allocation to long-term government bonds, despite their traditional role in balanced portfolios. While he acknowledges that bonds might rally if central banks implement yield curve control, he views this as an inefficient way to benefit from such policies compared to holding gold, Bitcoin, or equities that would likely appreciate far more dramatically in such scenarios.
The Accelerating Timeline: AI as a Wild Card
Gromen introduces an additional factor that he believes could compress the timeline for monetary reset: artificial intelligence. He argues that AI-driven productivity improvements will cause significant employment disruption within two to three years, creating economic and political crises that will force policy responses faster than the decades-long timeline that might otherwise apply to gradual monetary system transitions.
Drawing parallels to the “China shock” of manufacturing job losses following China’s entry into the World Trade Organization, Gromen suggests that AI will produce similar or greater disruption, but affecting white-collar workers with mortgages and car loans rather than primarily blue-collar manufacturing workers. He argues this will create banking system stress as consumer loan quality deteriorates, forcing central banks into aggressive monetary expansion that will accelerate currency debasement.
“The debt is an exponential doing this. AI is an exponential doing this,” Gromen explains, suggesting that the interaction between these two exponential trends will create extraordinary pressure for money printing to maintain financial system stability. “Once that happens, then you get to a spot where you better have gold!”
Conclusion: A Framework for Uncertain Times
Whether one fully accepts Gromen’s analysis or views it as overly pessimistic, his framework provides a structured way to think about portfolio construction during a period of genuine monetary uncertainty. His central insight—that fiscal constraints now bind monetary policy in ways fundamentally different from previous decades—merits serious consideration regardless of one’s ultimate investment conclusions.
For investors persuaded by his arguments, the implication is clear: traditional portfolios heavily weighted toward financial assets denominated in fiat currencies may provide inadequate protection against the possibility of significant monetary system changes. Whether through gold, Bitcoin, productive real assets, or some combination, Gromen argues that wealth preservation in the coming years will require holding assets whose value doesn’t depend solely on the fiscal sustainability and monetary credibility of heavily indebted governments.
As always, investors should conduct their own research, consider their individual circumstances, and potentially consult with qualified financial advisors before making significant portfolio changes based on any single perspective, however well-articulated.
Acknowledgment: This article was written with the help of AI, which also assisted in research, drafting, editing, and formatting this current version.
