What’s more worth paying attention to behind the gold correction: the loosening of the old system

Original | Odaily Planet Daily (@OdailyChina)

Author | Xiao Fei

Today, many bloggers are trying to use events from 1979 as a metaphor to understand the recent pullback in gold prices.

The path does seem similar: Middle Eastern conflicts, rising oil prices, inflation creeping up, gold rising then falling; by simply comparing candlestick charts, it seems one could provide insights.

However, upon deeper examination, the entire operational logic of the world and macro expectations have undergone drastic changes. Discussing theories and drawing candlestick charts is meaningless; 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 were two things that occurred after the Iranian Revolution.

The first was that the Federal Reserve changed the entire game by implementing extreme interest rate hikes. After Volcker took office, interest rates were pushed close to 20%. At such a rate, holding cash itself became the best asset, and gold, which yields no returns, was systematically abandoned.

The second event was the global funds flowing back into the U.S. credit system. The Cold War entered a phase of détente, and U.S.-Soviet tensions no longer escalated. The U.S. began to dominate unilaterally. By around 1982, the market was trading on expectations of “the U.S. re-stabilizing the global order,” leading funds back to dollar assets, and gold lost its support.

Thus, the significant rise and subsequent fall of gold that year was due to soaring interest rates + strong U.S. credit; prices were suppressed by the reconstruction of the authoritative system.

Today and tomorrow: The system is loosening

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

The reality today is that the scale of U.S. debt has ballooned to its limits, fiscal deficits are long out of control, and the entire financial system is highly sensitive to interest rates; not lowering rates is already considered tightening.

An even more concerning underlying structural change is that another reason for the gold drop back then was that global funds had renewed their faith in the U.S.

However, the nature of the current Middle Eastern conflict is entirely different. It is not merely a localized event that can be quickly resolved through negotiation (even though Trump occasionally comes out to spout nonsense), but has evolved into a system that continuously reinforces itself. This conflict generates outcomes in cycles and has cumulative effects: energy is being struck, shipping is disrupted, costs are pushed up, and finances are strained, locking all participants into this structure.

Moreover, this conflict has touched the core of the dollar system—energy. If U.S. control in the Middle East declines, if oil is no longer stable priced in dollars, or if related countries begin to choose different settlement methods, then the issue is not just oil prices, but: the entire cycle of petrodollars may be shaken.

When this narrative cracks, the foundation of dollar credit will no longer be stable. The “gold as a safe haven narrative” that we have long understood is actually a hedge against this credit system.

This comparison becomes quite interesting.

Over forty years ago, the pullback in gold was because that system became stronger. Now, the decline is occurring during a process where the system itself is being challenged and overturned. Back then, it was about “funds flowing back”; today, it’s about “funds finding a new anchor.”

Today’s gold is more akin to a phase of release; the significant rise has already priced in the conflict and inflation, and short-term funds are beginning to realize gains as the market enters a rebalancing phase.

Changing variables

Returning to the beginning, comparing today’s gold candlestick chart to that of 1979 holds no value, but the “changing variables” within it are worth contemplating.

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

How conflicts transmit through energy to inflation, how inflation affects interest rates, and how interest rates change asset pricing—this logic is already different. Today’s world has become more absurd and complex; it is no longer a world where a single extreme interest rate hike can re-stabilize order.

With conflicts spilling over, Trump’s erratic changes, energy prices remaining high, and the U.S. no longer having the capacity to suppress inflation with interest rates, the world may begin to re-price the entire credit system.

By that moment, gold will also assume a new role.