Gold has historically been a hedge against rising inflation driven by too much money chasing too few goods and services – as was the case in the late 1970s and early 80s – because of its status as a precious metal in limited supply. But since the early 2000s gold has increasingly reflected concerns over the stability of the global economy and financial markets following the bursting of the tech and housing bubbles – explaining its outsized price appreciation thereafter until 2012. By then extraordinary central bank measures stabilized markets and led to a reversal of gold relative to US equity and dollar price trends. (See our previous feature – What Price Insurance?).
The recent fall in the US dollar, which has remained the world’s reserve currency, reflects in large part the loss of US leadership in the face of rising global instability. That may again favor gold as the default currency going forward which would further be reinforced by a decline in equity prices in response to the increasing risks. (See our previous feature – Changing Tail Risk).
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