NEW YORK – JANUARY 9: Gold bars and coins are seen for sale at Manfra, Tordella and Brookes, Inc. January 9, 2003 in New York City. The price of gold has risen nearly 30 percent over the past year as investors seek stability as war with Iraq becomes more likely. (Photo by Mario Tama/Getty Images)
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Gold does not move up or down. The movements of gold signal the direction of the currencies in which it is priced.
The analysis of gold is an analysis of it other things. This is why purchases occurred in the yellow metal worldwide many centuries ago. Because of its unique stock/flow characteristics, it is the commodity that is least likely to be affected by other things, which means it is ideal as a measure of currency.
Money exists to facilitate the exchange of goods for goods, and since producers want equal value in return for their production, money defined as gold facilitates trade in an ideal way. of gold stability is its genius as its low-entropy definer money.
So why is it down right now, like why is the dollar moving up? Before we get to a completely speculative answer, it’s helpful to address a myth about gold that won’t die: gold is supposed to rise in response to rising market prices that are widely mistaken for “inflation.” Or vice versa. Nonsense.
Gold once again does not budge. If it rises as the dollar falls, that is inflation. Market prices are at best the effect of inflation. Saying that gold should rise in response to rising prices is like saying that wet pavements should cause the rain. No rain is rain and inflation is unit shrinkage. Wet pavements and rising prices are the result.
Which means it’s perfectly normal for gold to be in a slump as the “inflationary pressures” rooted in higher market prices are revealed. First, markets look ahead. Second, market prices can rise and fall for all sorts of reasons that have nothing to do with inflation. Third, a rising price signals a falling price. Economics is about compromises.
Why the fall in the price of gold? One guess is that the futures markets corrected the dollar down (gold rises) in anticipation of the much worse of what would happen in Iran, or simply repriced the dollar based on a portion of worst-case scenarios born of a conflict with Iran. This could include a world war at worst, a nuke by Iran, Israel, or both at another worst, or possibly a significant loss of life in a protracted conflict that, because it has been protracted and bloody, might be reflected in the dollar.
Without getting into the pros or cons of war, the market prices the odds and odds to varying degrees. The worst-case scenarios described have not materialized so far, and that has undoubtedly been good for the dollar. Call the falling gold price rally the relief of the dollar.
Next, consider Treasury Secretary Scott Bessent’s reaction to President Trump’s misguided comments from earlier this year that a weak dollar is “great.” That’s when the dollar hit an all-time low reflected in gold at $5,300. Notably here, Bessent did not parrot Trump, but reversed himself with a comment that “the US has always had a ‘strong dollar policy.’ Presidents get the dollar they want and the Treasury Department is the mouthpiece. Throw in the various people close to Trump who despise a weak dollar, and it’s possible that Bessed’s comments weren’t just a fluke.
As always, markets reflect infinite decisions that take place every millisecond of every day around the world. Which means there is no sure answer for market prices. However, it is not unreasonable to cite the two examples provided as dollar positives reflected in the fall in the price of gold.
At the very least, the hysterical comment suggesting that gold is failing as a “safe haven” amid supposedly rising “inflationary pressures” is just silly. Gold, like the markets, exactly it is. Readers can decide what is implied in it is.
