"The wolf shall live with the lamb, the leopard shall lie down with the kid, the calf and the lion and the fatling together, and a little child shall lead them. "
The above scripture refers to some distant golden age when things behave quite differntly from how they "normally" behave.
So many analysts misunderstand the behaviour of gold in fundemental ways. Gold is not an inflation hedge. Gold is not an anti-dollar play. It can be both, but only as a resulting consequence of its real purpose: Gold is a stability hedge.
Gold has basically and fundementaly held its value through 5000 years of recorded human economic activity. An ounce of gold (four aurii) accoutered a roman cavalry officer or a greek cavalry officer (four staters) thousands of years ago. Today an ounce of gold will buy a high end suit, shoes and haircut (and maybe even a watch if you don't go overboard) for any Private Equity or Venture Capital officer. Steady in value over 5000 years. And it is still used for that purpose by every Central Bank in the world.
You can say that for nothing else.
Right now the dollar is still the world's reserve currency. In times of tremendous turmoil the dollar will rise - and gold will rise along side it.
Today is such a day. The dollar index is up 1.1%. And gold is up 1.1 percent.
This is generally (there are no rules in finance) a precursor to big moves upward in gold. Because when the credit markets begin to seize up in the US - and globally - then gold will also rise as the dollar rises.
And when the dollar stops moving up because the Fed is injecting massively liquidity into the system in the form of bailouts adn QE - gold will rise as the dollar falls, especially when inflation is in full global force as it is now.
THis is the current cunundrum of high inflation at a time of massive debt accumulated over 50 years of easy money. Either you tighten and the credit markets break, or you ease and inflations soars. You're in a box.
I believe we are entering the beginning of this cycle. It will not go in a straight line. Gold will always have sudden large corrections because the the bullion banks funded by the Fed will attack the gold price to keep the illusion of order in the financial markets.
Even now we hear constantly that the banks are "well capitalized" even though mark-to-market was scrapped back in 2019 - so it impossible to know how well the banks are capitalized. It was a lack of mark to market accounting that kept SVB afloat for years after if was insolvent. Who else is in that boat? We'll find out over the next several months.
At the same time the repo market is beginning to blow out again, and the entire bank sector is under pressure as rising rates make their loan books worth less and less, while reducing the demand for new laons. And there are questions arising about the derivatives sector - which is a quadrillion dollar over the counter market - which is also not marked-to-market.
So as the results of Fed tightening works its way through the economy with the ususal year long lag, it will eventually become clear that order and stability is only an illusion - And at some point it will be hard for the Fed to control the gold price at all. It will take its place as the stable currency of choice. At much higher levels.
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