Hello, Reader.

The Law of Diminishing Returns is a nasty little ordinance… stating that the more money or energy is invested into something, the less profits or benefits will be gained.

Few aspects of life escape its tyranny.

For proof of this fact, consider the grim history of government finances.

Decade after decade, century after century, governments around the world have run up tabs they could not repay. The carnage that results is a familiar tale: Interest rates soar, inflation skyrockets, foreign investors flee, the economy tanks, and the currency collapses.

During the last 30 years alone, dozens of countries have defaulted on their debt or restructured it due to economic crises.

The list of “losers” ranges from tiny Caribbean islands like Dominica, Grenada, and Barbados to larger nations across the globe like Indonesia, Thailand, Malaysia, Argentina, Venezuela, Mexico, Zimbabwe, and Mozambique.

The reality is that borrowing is easy, but debt repayment is hard.

As common and pervasive as national defaults have been throughout the decades, though, most of us Americans feel as though we possess some sort of natural immunity to default.

Few of us lose any sleep over our soaring indebtedness. But “not yet” is not the same thing as “not ever.”

The U.S. has started to probe the outer limits of debt accumulation… and the gold market is watching. 

So, in today’s Smart Money, let’s take a look at why gold has been soaring right along with U.S. debt levels.

I’ll also explain why gold deserves an allocation in every investment portfolio – and reveal one of the best gilded investments for you to make.

Trusting Gold’s Insight

During the last few months, CD rates – or prices – on U.S. Treasury debt have jumped to all-time highs. That trend suggests that some folks are getting nervous about a looming disaster in the Treasury market.

Rising CD rates on U.S. Treasury securities reflect a combination of risks, but the top among them is America’s soaring debt load.

Back in 2016, U.S. debt-to-GDP crept above 100% for the first time since the end of World War II. Since then, U.S. debt levels have continued ratcheting higher… and now tally nearly 125% of GDP.

Although that level of indebtedness is not fatal, it is suboptimal.

This is where gold comes in.

As I mentioned, gold is a different type of default insurance that has been soaring right along with U.S. debt levels.

Right now, dollar bills are the only asset backing U.S. Treasury debt, and the only “asset” backing dollar bills is the “full faith and credit” of the United States.

So, to the extent a heavily indebted U.S. Treasury undermines that faith, investors place their trust in gold. It represents the opposite of faith; it represents doubt, which is why it is the refuge of skeptics and nonbelievers.

Perhaps America’s rising debt load is no big deal, as many in Congress would have us believe. Perhaps gold is making a mountain out of a molehill. But I would err on the side of trusting gold’s “insight.”

Consider, for example, that the cost of paying interest on U.S. Treasury debt is starting to “hockey stick” skyward. The U.S. government now spends more than $1.1 trillion in annual interest payments, which is 30% more than it spends on the entire Department of Defense!

In theory, the U.S. could reverse these ominous debt trends, but the political appetite to do so is limited. This is a big part of the reason why the gold price notched a recent all-time high.

These related trends deserve close attention, because every debt crisis in history has spawned a currency crisis.

My friend Henry has a “box of money” that underscores that point.

A few years ago, when I was visiting Henry in his Manhattan office, he carried a simple shoebox over to me and said, “Open it.” When I opened the lid and peered into the box I saw money – lots and lots of money.

But all of it was worthless.

There were rubles from pre-Soviet Russia, 50 million-mark bills from the Weimar Republic period in Germany, pesos from the 1950s government of Cuba’s Battista regime, and even a few extinct Brazilian cruzeiros.

Now, the U.S. dollar does not yet belong in Henry’s “box of money.” But, as I said above, “not yet” is not the same thing as “not ever.”

As mighty as the greenback remains, it will not retain its might without prudent stewardship of our national finances.

Although the U.S. government’s debt burden is not yet fatal, it is moving in the wrong direction, which is why Moody’s – a company that provides credit ratings, research, and analysis on companies and governments – stripped the U.S. of its Triple A credit rating last month.

As Moody’s said, “Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.”

Given these trends, gold deserves an allocation in every investment portfolio, including yours.

A Rally Worth Chasing

As it stands, gold is a bet on monetary and geopolitical disorder. And the aromas of both are wafting on the breeze.

America’s weakening financial condition is not the only factor animating the gold price. The new hostilities in the Middle East are adding a significant “X-factor” to the gold-buying equation.

Because of these twin disorders, I recommend buying into the gold market’s current strength.

Now, I rarely suggest “chasing rallies” like this one, but I suspect this rally is worth chasing. A near-term correction could certainly strike the gold market at any moment, of course, but the long-term outlook for this ultimate portfolio hedge looks compelling.

That is why, in my Fry’s Investment Report service, I just recommended a precious metal closed-end fund that holds roughly half its assets in physical gold (the other half in silver).

Unlike regular mutual funds that always change hands at their exact net asset values (NAVs), closed-end funds can trade above or below their NAVs, depending on investor demand for them.

Because closed-end funds issue limited amounts of shares, their prices after the initial issue are set by whatever investors are willing to pay. That means they can trade at a discount to their NAV.

Currently, this golden closed-end fund is trading close to its deepest discount of the last seven years.

Click here to learn how to access all of the details about this play on gold.

As a reminder, the U.S. stock market will be closed this Thursday, June 19, in observance of the Juneteenth holiday. The InvestorPlace offices and Customer Service department will also be closed. Regular hours will resume on Friday, June 20.

Regards,

Eric Fry