What Happened to Gold?

If you went into a laboratory to build a gold price optimizer, you would want a couple of things.

  • A falling dollar
  • Rising inflation expectations
  • Money printing
  • Central bank balance sheets expanding
  • Fiscal deficits increasing
  • Political turmoil

All of these things were in place over the last few months, and yet gold has done the opposite of what you expected it to do. It’s down 9% over the last 6 months, and it’s 15% below its highs in August.

Gold could rally on any one of the items I mentioned. All six were in place at the same time, and it couldn’t get out of its own way.

The dollar is sitting near multi-year lows, and gold can’t rally.

5-Year inflation expectations are at a 5-year high, and gold can’t rally.

Money printing is happening at an unprecedented rate, and gold can’t rally.

The central bank’s balance sheet is also expanding at an unprecedented rate, and gold can’t rally.

The deficit is increasing…

…as is our debt to GDP

…As well as the gap between our outlays and our revenue. And gold still can’t rally.

Gold is said to do well when there is political turmoil. Well, on the day that The Capitol was desecrated, gold fell almost 2%. Two days later, it fell more than 3%.

The last few months have been the perfect storm for gold. But even with the wind at its back, it sunk to the bottom of the ocean.

What happened?

I have a few ideas. We’ve always said that gold marches to the beat of its own drum. Maybe the stories that we’ve ascribed to its price movements were just that. Maybe gold can rise and fall and go sideways in any market environment. Or maybe gold, despite its metoric rise along-side inflation in the 1970s, doesn’t really protect against inflation?

Here’s Peter Bernstein, from The Power of Gold:

The cost of living doubled from 1980 to 1999- an annual inflation rate of about 3.5 percent- but the price of gold fell by some 60 percent. In January 1980, one ounce of gold could buy a basket of goods and services worth $850. In 1999, the same basket would cost five ounces of gold.

The idea that gold protects against the decline of fiat or the debasement of the dollar is a really good story, one that intuitively makes sense to everyone. But maybe it just isn’t true?

What if Bitcoin really is the new gold? Stanley Druckenmiller, one of the best macro traders of all time thinks it’s a possibility. Paul Tudor Jones, another legendary macro investor is in the same boat.

On January 6th, the day The Capitol was stormed, Bitcoin shined, not gold. The former gained 9% that day while the latter dropped 2%.

Or maybe I’m just making up stories. Maybe gold is just pulling back before its next leg higher. That’s certainly a possibility.

I guess time will tell if gold is broken, or if it’s merely catching its breath. Either way, you can’t help but notice how unusual this recent decline is given the fact that gold didn’t work when everything said that it should.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.