Gold has climbed above $3,500 per ounce. At first glance, this might look like a signal of inflation or a “weak dollar.” But the picture is more complicated.
Gold hasn’t been a liquid monetary tool for a long time: it’s no longer used in global settlements and it doesn’t serve as core collateral in today’s financial system.
That’s why its rally can’t be explained by Fed money printing or monetary expansion. The real driver lies in mounting deflationary risks.
The data speak for themselves: consumer spending is slipping, business activity indexes remain weak, the labor market is losing steam, and real incomes are shrinking.
In this environment, gold plays a defensive role. Not because it can be instantly turned into liquidity, but because it’s still seen as a safe haven when there are few trustworthy alternatives.
Geopolitics add another layer: trade wars, Middle East tensions, and political instability in Europe. All this boosts demand for an asset that stands apart from the decisions of central banks and governments.
In that sense, gold is a form of insurance against systemic breakdowns – the kind that may well surface in the coming years when the deflationary trend collides with another round of political crises.
