The More Noteworthy Story Behind Gold's Pullback: The Loosening of the Old System

Original | Odaily Planet Daily (@OdailyChina)

Author | Xiao Fei

Today, many bloggers are trying to interpret the recent decline in gold by comparing it to the events of 1979, as if carving a boat to seek a sword.

The paths indeed seem similar: Middle East conflict, rising oil prices, inflation upticks, gold first rising then falling. By simply comparing the candlestick charts, it appears we can make predictions.

But upon deeper analysis, the entire world’s operating logic and macro expectations have undergone earth-shaking changes. Discussing charts on paper is meaningless; instead, examining the underlying fundamentals can give us a glimpse of the bigger picture.

Using history as a mirror: What happened in 1979

The key events of 1979 are twofold, following the Iranian Revolution.

First, the Federal Reserve drastically changed the game with extreme interest rate hikes. After Volcker took office, rates were pushed close to 20%. At such levels, holding cash became the best asset, and assets like gold, which have no yield, were systematically abandoned.

Second, global capital re-entered the U.S. credit system. As the Cold War eased, U.S.-Soviet confrontation no longer escalated, and the U.S. began to lead unipolarly. By around 1982, markets were trading on the expectation that the U.S. would restore global stability. Capital flowed back into dollar assets, and gold lost its support.

Therefore, the gold surge and subsequent decline in that year were due to rising interest rates + strong U.S. credit, with prices being suppressed by the restructured authoritative system.

Today and tomorrow: The system is loosening

Applying the same logic to today, the key variables are exactly opposite—we are standing on the other side of the cliff.

Currently, the U.S. debt has expanded to its limit, fiscal deficits are long-term out of control, and the entire financial system is highly sensitive to interest rates. Not cutting rates is already a form of tightening.

Another fundamental change is that, back then, gold fell partly because global capital regained confidence in the U.S.

But today, the nature of the Middle East conflict is entirely different. It’s not a localized event that can be quickly resolved through negotiations (even if Trump occasionally spouts nonsense). It has evolved into a self-reinforcing system. The conflict produces cyclical results and cumulative effects: energy disruptions, shipping disturbances, rising costs, fiscal strain—all participants are locked into this structure.

Moreover, this conflict touches the core of the dollar system—energy. If U.S. influence in the Middle East wanes, if oil no longer remains stable and dollar-denominated, or if involved countries start choosing different settlement methods, the issue is no longer just oil prices but: the entire cycle of petrodollars could be destabilized.

This narrative crack appears, and the foundation of dollar credibility becomes less secure. The traditional “gold as a safe haven” narrative is essentially a hedge against this credit system.

This contrast becomes quite interesting.

Over forty years ago, gold’s correction was because that system was stronger. Now, the decline occurs amid a system being challenged and potentially overturned. Back then, “capital reflow,” today, “capital seeking new anchors.”

Today’s gold is more like a phase release—big gains have already priced in conflict and inflation, and short-term profits are being realized as the market rebalances.

Variables of change

Returning to the beginning, comparing the 1979 gold candlestick chart to today is of no real value, but the “changing variables” behind it are worth deep reflection.

In 1979, the dollar was the answer; in 2026, the dollar is also being re-priced.

How conflict transmits through energy to inflation, how inflation influences interest rates, and how interest rates change asset prices—all these logics are different. Today’s world is more absurd and complex; it’s no longer a world where a single extreme rate hike can restore order.

The spillover of conflict, the unpredictable shifts in policy, sustained high energy prices, the U.S. no longer capable of controlling inflation through interest rates—perhaps the entire credit system will be revalued.

When that happens, gold will also take on a new role.