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 history is repeating itself.

The paths do seem similar: Middle East conflict, rising oil prices, inflation concerns, gold initially rising then falling. By simply overlaying the candlestick charts, one might think they can predict the trend.

But upon closer examination, the fundamental logic and macro expectations of the world have undergone earth-shaking changes. Discussing charts on paper is meaningless; instead, exploring 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 Paul 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 and U.S.-Soviet tensions de-escalated, the U.S. began to lead unipolar dominance. 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 sharp rise and subsequent fall of gold in that year was due to rising interest rates + strong U.S. credit, with prices being suppressed by the reconfiguration of the 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 declined because global capital regained confidence in the U.S.

But today’s 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 outcomes and cumulative effects: energy supplies are hit, shipping is disrupted, costs rise, and fiscal pressures mount—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. It’s: The entire cycle of petrodollars could be destabilized.

This narrative crack appears, and the foundation of dollar confidence becomes less secure. The “gold as a safe haven” narrative we’ve always understood is essentially a hedge against this credit system.

This contrast becomes very interesting.

Over forty years ago, gold’s correction was because that system was stronger. Now, the decline occurs amid a challenge and potential upheaval of that system itself. Back then, “capital was flowing back,” and today, “capital is searching for a new anchor.”

Today’s gold resembles a phased release—its big rally has already priced in conflict and inflation, and short-term investors are beginning to realize gains, leading the market into rebalancing.

Variables of change

Returning to the beginning, comparing today’s gold candlestick chart with 1979’s 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 now. The world today 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 policies of Trump, sustained high energy prices, the U.S. no longer capable of controlling inflation through interest rates—all suggest that the entire credit system might be revalued.

And at that moment, gold will take on a new role.