Scarcity, Security, and the Search for Real Return

The Weekender is my bi-weekly take on macro shifts and emerging themes. It’s not investment advice — or even our firm’s official view. I aim simply to inform, challenge, and maybe entertain. If you’d like this in your inbox every other Saturday morning via Northern Trust, click the subscribe to insights button in the lower left corner and select The Weekender.

Higher Hurdles

Many investors target consumer price index (CPI)-plus returns to preserve purchasing power and, ideally, generate real returns over time. CPI helps offset inflation’s corrosive effects, but does it account for monetary debasement? That remains unclear.

It’s not just central banks expanding the money supply — private banks do too. Every loan issued creates new money by crediting the borrower’s account, increasing the amount of money in circulation. M2, which captures this, just hit a record $22 trillion (with Federal Reserve cuts looming). It was $6.9 trillion two decades ago. That implies U.S. dollar purchasing power has eroded at a compounded rate of nearly 6% per year. While not a formal benchmark, might some investors start using M2 growth as a conceptual lens for evaluating real returns? And if so, might the hurdle rate for real returns increase to reflect this? M2 growth + X% perhaps?

Real Returns

Let’s park this question for now (and the question of whether markets are cheaper once adjusted for M2 growth). Instead, let’s identify assets with constrained or declining supply, or where supply cannot keep pace with the growth of the money supply.

Three stand out:

• U.S. large-cap equities, where annual buybacks have lowered the float.
  
• Bitcoin, with its fixed 21 million supply.
  
• Gold, with supply growth of roughly 1% vs. a 30% surge in money supply since the COVID-19 epidemic.

Gold

Northern Trust has published thoughtful research analyzing 150 years of inflation data, showing gold — and quality factors — can persist through both inflationary and deflationary extremes (see here¹). More compelling is research² from the World Gold Council (WGC), which argues that while CPI-linked instruments like Treasury Inflation-Protected Securities (TIPS) protect future spending, only gold has historicallyshielded purchasing power from surging money supply. The chart from another WGC report,³ illustrates this well (Exhibit 1).

EXHIBIT 1: GOLD PRICES

Gold prices have tracked the expansion of the U.S. money supply.

*As of Dec. 31, 2024, U.S. CPI and U.S. M2 were constructed using data from Jan. 1972 and re-based to 100 on Jan. 1972. Gold based on the LBMA Gold Price PM USD.

Source: Bloomberg, ICE Benchmark Administration, World Gold Council.

A Digital Reincarnation: Digital Gold

But what’s really exciting is the Financial Time’s piece: "London’s Bullion Market to Trial Digital Gold⁴." I’ve been intrigued by this concept since it first surfaced. Wrote about it here⁵ and interviewed WGC CEO David Tait here.⁶

David’s vision? A blockchain-based registry of responsibly sourced gold, tokenised for digital use. The goal: better governance, provenance, environmental impact, and system collateral. It’s a fintech play with real-world utility — one that could appeal across the investor spectrum, from retail to institutional, Gen Z to pension funds.

So What?

Gold has long been about preservation, not appreciation. A defensive asset; a hedge against inflation, financial repression, and currency debasement. When trust in the system falters — like it did in the 1970s and again after the seizure of Russian reserves — central banks accumulate. Gold now makes up just over 20% of foreign reserves, albeit far below 1970s levels.

The WGC wants to rewrite the narrative — to connect gold’s defensive past to a more offensive future. It’s ambitious, unfinished, but potentially transformative. Millions of new investors could be drawn to digital gold for the same reasons they were captivated by crypto. If you’re curious, and have 20 minutes, listen to this: MoneyMaze podcast.⁷ David’s story is worth it.

Copper Bottomed

In a Cabinet meeting on Aug. 26,⁸ U.S. President Donald Trump acknowledged the U.S. may be winning the artificial intelligence (AI) capital expenditure race, but is losing the AI electricity race:

President Trump’s statement:

"We would need double the energy. If you take all the electricity that we produce right now in this country, you'd have to multiply it times two or maybe three times. So three times more than we have right now for everything to operate your toaster and everything else. Okay? Three times more.”

Rio Tinto, a British-Australian multinational company and one of the world’s largest metals and mining corporations, noted on it’s second-quarter earnings call that electricity demand is growing 2.5 times faster than overall energy demand. We’ve previously discussed silver⁹ demand from Chinese solar and U.S. military applications. Copper demand is rising from energy reindustrialisation. Both metals now appear in the draft 2025 Critical Minerals List — essential for U.S. national security.

Translation: a new buyer may emerge. Strategic, price-insensitive, and large. That buyer could provide a copper-bottom for the industry.

Buying Local – Continued

As noted¹⁰ last time, one argument for developed market ex-U.S. equities is low retail participation — a potential source of marginal liquidity if governments succeed in nudging savers into markets. In the E.U., Bloomberg¹¹ suggests that if German equity ownership matched France’s (as a percentage of gross domestic product), it could unlock €1.1 trillion — nearly half the size of the entire German market (€2.6 trillion).

In China, regulators are trying to cool a $1.2 trillion stock rally to promote long-term, stable investing and reduce speculation. This shift supports economic recovery and helps address demographic pressures, as fewer workers will be supporting more retirees. Stronger, more sustainable, and less volatile capital markets could ease strain on the social safety net and replicate the U.S. model of retirement wealth, where retirees rely more on retirement income than state pensions. While it’s unlikely China will reach U.S. levels anytime soon, as Exhibit 2 below shows, it has a long way to catch up — a fact likely not lost on the Chinese Communist Party (CCP).

EXHIBIT 2: AMERICAN EXCEPTIONALISM

The Cruellest Irony

It would be a cruel irony if climate change delays the U.K.’s net-zero ambitions. The U.K. has limited North Sea oil and gas investment in favor of renewables, relying heavily on Norwegian imports. But Norway’s hydro lakes are low — thanks to scant snowfall and a hot summer. With hydro making up roughly 90% of Norway’s electricity, prices may surge.

In a worst-case scenario, Norway could become a net importer¹² pushing U.K. electricity prices higher — at the worst possible time. Long-term gilts, which are U.K. government bonds, may already be reflecting these pressures. If fiscal pressures mount, net-zero spending could come under scrutiny — and Norway’s role too. Curiously, North Sea exploration stocks are rising, even as oil prices fall. Do they know something we don’t?

¹ Guido Baltussen, Milan Vidojevic, and Bart Van Vliet. “Navigating Inflation and Tariffs: Strategic Lessons from 150 Years of Data.” Northern Trust Asset Management, 2025.

²  World Gold Council. “Beyond CPI: Gold as a Strategic Inflation Hedge.” Goldhub Research, April 21, 2021.

³ World Gold Council. “Gold as a Strategic Asset: 2025 Edition.” Goldhub Research, January 23, 2025.

⁴  Joe Miller, Myles McCormick, and James Politi. “Donald Trump’s Tariffs Ruled Illegal by US Appeals Court but Stay in Place.” Financial Times, August 29, 2025.

⁵ Gary Paulin. “A Golden Opportunity, Defining Bravery and Bad Australian Humour.” LinkedIn Pulse, April 15, 2024.

⁶  Grant Johnsey and Jody Gunderson. “What’s Driving the Boom in Asset-Based Finance?” Faster Forward – A Northern Trust Podcast, August 13, 2025.

⁷  Money Maze Podcast. “Gold! Why & How to Own It, Tokenisation and Investor Positioning – With David Tait.” YouTube, August 16, 2024.

⁸ Donald Trump. “Trump Cabinet Meeting Transcript – August 26, 2025.” Rev.com, August 26, 2025.

⁹ Gary Paulin. “New Narratives Needed.” The Weekender – Northern Trust Asset Management, August 22, 2025.

¹⁰ Paulin, “New Narratives Needed.”

¹¹  Jana Randow and Nicholas Comfort. “Cash-loving Germans are Finally Joining the Stock Market Frenzy.” Bloomberg, August 22, 2025. Kathryn Porter. “Norway’s Electricity Crisis Is About to Hit Britain.” The Telegraph, August 31, 2025.

¹²  Kathryn Porter. “Norway’s Electricity Crisis Is About to Hit Britain.” The Telegraph, August 31, 2025.