Why Isn't Gold Acting Like a Safe Haven—Yet? Part III: Is This Gold's Next Leg Up?

 

First of all there is need to remember that the gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion—policemen, customs guards, penal courts, prisons, in some countries even executioners—had to be put into action in order to destroy the gold standard. Solemn pledges were broken, retroactive laws were promulgated, provisions of constitutions and bills of rights were openly defied. And hosts of servile writers praised what the governments had done and hailed the dawn of the fiat-money millennium.—Ludwig von Mises 

In this issue: 

Why Isn't Gold Acting Like a Safe Haven—Yet? Part III: Is This Gold's Next Leg Up?

I. Introduction: From Finding the Bottom to Explaining the Reversal

II. The Gold Cycle: Cyclical bear, Secular bull

III. The New Plaza Accord: Intervention and Its Shrinking Half-Life

IV. Deepening Interventions Becomes Gold's Catalyst

V. When Former Headwinds Become Tailwinds

VII. Central Banks as Dip Buyers, and the Fund-Flow Tailwind

VI. Risk-Off, Inflationary, and Fiscal Signals Converge

VII. Central Banks as Dip Buyers, and the Fund-Flow Tailwind

VIII. Bottom line: Gold Is Pricing the Limits of Intervention 

Why Isn't Gold Acting Like a Safe Haven—Yet? Part III: Is This Gold's Next Leg Up? 

Intervention was supposed to stabilize currencies and bonds. Instead, each attempt is exposing the imbalance underneath—and gold is beginning to price it.

I. Introduction: From Finding the Bottom to Explaining the Reversal 

Figure 1 

This piece started as an attempt to answer whether gold had found a bottom. Events overtook the question. In the space of a week, gold cleared its 200-day moving average at $4,501, broke above $4,600, surpassed the 38.2% retracement of its decline from March's record, and confirmed the rounding-bottom pattern that had been forming since June. It was gold's third straight weekly gain—and its third strongest week of the year. 

The question of the bottom is no longer the interesting one. 

What's worth asking now is whether this is the start of gold's next leg toward its late January record near $5,400-$5,600, and — more importantly for this series — why it's happening.

Part I and Part II of this series argued gold's early-2026 weakness was a liquidity-stress phenomenon, not a failure of its safe-haven role — the gold-oil ratio compressing as energy-importing economies scrambled for dollars, gold sold because it remained liquid enough to fund margin calls, not because confidence in it had broken. Gold peaked above $5,500 intraday in late January, fell in a rounding top that hardened into a roughly 28% decline into late June, then based and turned. That much was covered in the earlier articles. 

What has changed is the pace and the trend—and, as the following analysis shows, the trigger. 

II. The Gold Cycle: Cyclical bear, Secular bull 

Gold's advance since the Nixon shock of August 15, 1971, has never moved in a straight line. It has progressed through a series of secular cycles, with cyclical bear markets occurring within the larger structural trend. Those corrections have varied considerably in both depth and duration.

Figure 2

The shortest cyclical bear market under a secular bullmarket was the 2008 decline, at roughly 26%, which resolved within about eight months. The deepest was the 2011–2015 decline, at roughly 48%, which lasted four years and marked the hiatus before the current cycle. February–June's roughly 28% decline over four months therefore looks much closer, in depth and duration, to the 2008 cyclical correction than to the 2011–2015 secular break. (Figure 2, topmost pane) 

Importantly, the structural forces behind the current advance have not disappeared. Central-bank de-dollarization, fiscal dominance, a geopolitical order drifting toward blocs, a deepening war economy, asset bubbles, and persistent inflation remain part of the monetary and institutional environment supporting gold. 

A liquidity-driven correction can therefore interrupt a secular advance without terminating the forces that produced it. If the current reversal holds, the February–June decline may prove to have been another cyclical bear market nested within the larger secular bull—not the end of the cycle itself. 

And if that interpretation is correct, the current advance would represent the third major leg of gold's post-Bretton Woods secular bull, following the 1970s advance and the 2001–2011 bull market. (Figure 2, middle graph) 

III. The New Plaza Accord: Intervention and Its Shrinking Half-Life 

On July 31, Japan's Ministry of Finance confirmed a coordinated yen-buying intervention with the US—the first joint action since 2011—after the yen slid toward 40-year lows near 163 to the dollar. 

The September 1985 Plaza Accord is the obvious comparison, but the history deserves care. Gold began rising in February 1985, before the Accord, and rallied roughly 50% from the Accord through November 1987—so gold did respond. (Figure 2, lowest image) 

What the Accord did not do was deliver gold's secular low. The dollar devaluation it engineered helped inflate Japan's property and stock bubble, which peaked in 1990 and produced the “lost decades,” with aftershocks plausibly extending through the 1994 Tequila crisis, the 1994 bond crisis (Great Bond Massacre), and the 1997 Asian financial crisis. 

Gold's actual secular bottom wasn't etched until the post-Asian-crisis, post-dot-com years around 1999–2001, symbolically marked by Gordon Brown's UK gold sales near the trough. 

The 1980–1999 gold secular bear was, in effect, the salad days of the dollar standard. 

A Plaza-style intervention can produce a real, tradeable cyclical gold rally without stabilizing the underlying system. Plaza's deeper legacy was several years of instability surfacing elsewhere, not durable currency-regime repair.

Figure 3

The yen's own history since 2022 makes the point more directly. Japanese authorities have repeatedly intervened to support the yen, yet each intervention has ultimately been followed by renewed downward pressure. (Figure 3, topmost pane) 

The pattern has been remarkably consistent: intervention produces an abrupt reversal, but the underlying trend eventually reasserts itself. 

That is the shrinking half-life in practice. The more fundamental forces driving the currency remain in place, so each intervention has to work harder to produce the same effect—and the market increasingly treats the intervention itself as evidence of the underlying imbalance. 

That caution has aged well. It took the bond market almost two weeks to fully erase the initial effect of the Fed-BoJ intervention. Then, on August 19, with 30-year Treasury yields pushing above 5.30%—the highest since 2007—the Treasury unexpectedly doubled its long-end buyback capacity, from a $2 billion to at least a $4 billion cap per operation, effective September 9. Yields fell instantly, equity futures jumped, and gold spiked. 

The Treasury's buyback program had already been operating since May 2024. The August move therefore wasn't the introduction of a new tool, but an expansion of an existing one. The important point is what happened despite that intervention: long-term yields had continued rising, suggesting diminishing returns from efforts to absorb duration and stabilize the long end. (Figure 3, middle image) 

This time the effect lasted one day! By Friday, the 30-year yield had regained the entire drop and then some, closing at 5.27%, while the 10-year sat at 4.74%—a single basis point from its pre-intervention high. 

Wolf Richter's account of the episode is worth noting for its diagnosis: the rise in long-term yields wasn't market dysfunction requiring correction, but the consequence of the government having to sell roughly $1 trillion in new debt over three months to fund the deficit, with buyers demanding compensation for inflation risk, the fiscal trajectory, and the sheer volume of paper that must clear the market every few months. Those pressures cannot be resolved by a signaling exercise from the Treasury secretary. 

Treasury Secretary Bessent himself all but conceded the point on CNBC the following morning, repeatedly describing the move as "signaling." 

Nor is Treasury the only official-sector actor absorbing government debt. The Federal Reserve's balance-sheet reduction ended in December 2025, after which it began purchasing Treasury bills and other short-term Treasuries to maintain an ample supply of reserves. Its outright Treasury holdings have subsequently been rising, reaching roughly $4.54 trillion by August 19, 2026. FRED (Figure 3, lowest visual) 

This may not be technically classified as quantitative easing (QE), but economically it represents renewed official-sector absorption of Treasury securities. And the more revealing point is what has happened alongside it: long-term Treasury yields have continued to rise. 

The implication is straightforward: despite the labeling, official-sector absorption of Treasury debt is increasing, yet it is not preventing the market from demanding higher yields on longer maturities. That is evidence of diminishing intervention effectiveness, not evidence that the underlying pressure has been resolved.

Figure 4 

And the underlying pressure is not static. The US national debt has now crossed $40 trillion, while interest costs have continued to accelerate. According to the figures cited by ZeroHedge, interest expense had already reached roughly $1.37 trillion in 2026, about 20% above the comparable period a year earlier. (Figure 4, topmost and middle images) 

This is where intervention encounters a structural problem. Deficit spending creates the borrowing requirement; rising yields increase the cost of servicing that borrowing; and higher interest costs, in turn, enlarge the deficit and require still more borrowing. The market is therefore confronting a moving target: official-sector intervention may temporarily absorb Treasury supply or suppress yields, but the fiscal requirement generating that supply continues to expand. 

The effectiveness of intervention consequently diminishes as the underlying imbalance grows. What might once have been sufficient to stabilize the market becomes progressively less effective when the volume of debt, the interest burden, and the compensation demanded by investors are all rising together. 

Two interventions in three weeks have produced only temporary relief, while the fiscal, currency, and bond-market pressures behind them have quickly reasserted themselves. That is the more important signal for gold. Yields of 10 and 30 year treasuries were at milestone highs (Figure 4, lowest diagram)

Figure 5 

Japanese Government Bons (JGB) yields tell a similar story. 

They remain below their immediate pre-intervention spike, but have begun climbing again, touching a fresh three-decade high near 2.94% on August 18 before easing only slightly. Figure 5, topmost image) 

The same pattern is emerging in Japan: intervention can alter market prices temporarily, but it does not remove the underlying pressure on the currency and sovereign bond market. 

IV. Deepening Interventions Becomes Gold's Catalyst 

For gold, however, the significance is different. 

Gold had already been trading around and holding the $4,000 level from late June through early August. 

First, the Fed-BoJ intervention provided the catalyst for the first lift-off from that base, reinforcing $4,000 as the floor. 

Then, Bessent's Treasury backstop came afterward, adding fuel to an advance that was already underway. 

The initial decline in long-term yields quickly disappeared, but gold retained its momentum. 

The result was the sequence described at the beginning of this piece: gold broke its 200-day moving average at $4,501, moved above $4,600, surpassed the 38.2% retracement of its March decline, and confirmed the rounding-bottom pattern that had been forming since June. 

The significance therefore goes beyond the failure of either intervention to suppress yields. The interventions themselves are becoming part of the mechanism driving gold higher. Attempts to contain currency and bond-market pressures are adding to the monetary and financial imbalances that gold is increasingly pricing. 

This is where the comparison with the Plaza Accord becomes more interesting. The 1985 agreement did not simply weaken the dollar; it set in motion adjustments that eventually surfaced elsewhere in the financial system. 

Today's bilateral intervention comes against a far more leveraged fiscal and monetary backdrop, with sovereign debt, currency instability, and official-sector intervention increasingly interacting with one another. 

If history rhymes, the contemporary bilateral Plaza Accord may mean more than a break of the recent high—it may mark the beginning of sharply higher gold prices. 

V. When Former Headwinds Become Tailwinds 

WTI crude was up roughly 5% this week, back above $86, as the US-Iran standoff over the Strait of Hormuz shows no sign of resolving and Washington prepares tighter sanctions. (Figure 5, middle graph) 

That is worth pausing on because oil-driven dollar demand was the mechanism Part I and Part II identified as suppressing gold earlier this year: energy importers scrambled for dollars, and gold was sold for liquidity even as the safe-haven case strengthened. 

The same forces are now coinciding with gold's advance rather than working against it. 

That is not a contradiction. It means the liquidity-stress channel has been overtaken by the larger fiscal-currency-risk channel this piece has been tracking. The same energy shock that once forced gold sales for dollar liquidity is now compounding, rather than competing with, the debt and currency concerns driving the bid for gold. 

There is another important change in the relationship between gold and Treasury yields. Earlier in the year, rising 30-year Treasury yields appeared to place a ceiling on gold's advance. Now the relationship appears to be changing: gold is rising even as the 30-year yield pushes above the level at which the Treasury's intervention sought to stabilize it. 

The market is therefore no longer responding to higher yields simply as an opportunity cost for holding gold. It is increasingly interpreting those yields as evidence of the fiscal and currency pressures that make gold more attractive in the first place. 

It is also worth noting that rising gold prices and rising 10-year Treasury yields have historically coexisted during the stagflationary periods of the 1970s. (Figure 5, lowest chart) 

The parallel with today is not exact—the degree of systemic leverage is vastly different—but the coexistence of rising nominal yields and rising gold is not unprecedented when inflation, fiscal pressure, and confidence in the monetary regime become dominant forces. 

VI. Risk-Off, Inflationary, and Fiscal Signals Converge 

Gold's rise also came as risk appetite weakened. The S&P 500 fell about 1.4% on the week, its first weekly decline in a month, dragged by a rough five days for technology; the Nasdaq lost roughly 2%. That gives this week's move a stronger risk-off component: equities fell while gold rose. 

But it was not a conventional flight to safety. Oil was rising, long-term Treasury yields were rising, and gold was rising with them. Growth concerns and inflation/fiscal concerns were therefore appearing simultaneously: stocks were pricing weaker risk appetite, while oil and bond yields were pricing inflation, supply, and fiscal pressures. 

That combination is arguably more important for gold than a conventional risk-off episode. Gold was not merely benefiting from falling risk assets; it was responding to the same underlying deterioration that was simultaneously pushing up oil and long-term yields. 

Curiously, Bitcoin also surged more than 22% during the week, briefly moving above $77,000, reflecting both renewed risk appetite in the crypto market and, potentially, a safe-haven bid amid concerns over currencies and the monetary system. Short covering amplified the move. 

Taken together, the week's price action looks less like a simple flight to safety than a convergence of risk-off, inflationary, and fiscal signals—and gold is increasingly responding to all three. 

VII. Central Banks as Dip Buyers, and the Fund-Flow Tailwind

Figure 6

Central banks were buying into the selloff. The World Gold Council's Q2 2026 data showed central banks adding 102 tonnes of gold during the quarter, even as gold prices fell roughly 16%. (Figure 6, upper diagram) 

As of the first half of 2026, Poland remained the largest reported buyer at 82 tonnes, followed by Uzbekistan at 41 tonnes, China at 40 tonnes, and Kazakhstan at 27 tonnes. World Gold Council: Central Bank Gold Statistics, June 2026 (Figure 6, lower graph) 

The significance is not the absolute volume, but the direction of demand during the correction. While more price-sensitive and leveraged holders were liquidating, official-sector demand was increasing. Central banks were therefore absorbing part of the supply released by the selloff, providing an important counterweight to the liquidation pressure that drove gold lower. 

The longer-term demand signal remains equally important. The World Gold Council's survey found that 89% of reserve managers expect official gold holdings to increase over the next 12 months. That suggests the buying is not simply a reaction to short-term price movements, but part of a broader shift in reserve preferences.

Figure 7

Fund flows provide a second layer of support. Gold held the $4,000 area for close to two months as renewed ETF inflows emerged, while the two previous stretches of stronger fund flows—roughly August–October 2025 and November–February 2026—preceded significant advances, including the run into January's record. (Figure 7, upper image) 

The pattern does not mean ETF flows mechanically determine prices, but it does show that renewed investment demand has tended to accompany—and at times precede—the next major leg higher.  

Independent ETF data reinforce the change in direction: global gold ETFs returned to inflows in July after May–June redemptions had flushed out leveraged positions, with flows continuing into August. The important development is therefore not simply the amount of money flowing into gold, but the transition from forced liquidation to renewed accumulation. 

India's Dhanteras and Diwali season could provide an additional, though more modest, seasonal catalyst into year-end, alongside whatever short covering remains from a positioning backdrop that has been reduced but does not appear fully washed out. (Figure 7, lower visual) 

The ownership dynamics are therefore changing. Central banks were accumulating while weaker and more leveraged holders were liquidating; as that selling pressure subsided, ETF flows turned positive. The correction consequently did not destroy the underlying demand structure. Instead, it transferred gold from more price-sensitive holders toward buyers with a stronger strategic (non-price sensitive) incentive to own it. 

That matters for the next leg. The same selloff that removed speculative excess also created the conditions for a stronger base: official buyers absorbed supply, leveraged positions were reduced, and investment flows are now returning as gold moves higher. 

VIII. Bottom line: Gold Is Pricing the Limits of Intervention 

The question this piece opened with has effectively been answered by the market: gold has bottomed. What deserves scrutiny now is why, because the explanation is not the conventional one. 

Two interventions in three weeks—one in currencies, one in the bond market—have produced only temporary effects in the markets they were intended to stabilize. Yet their significance for gold has been the opposite. 

The Fed-BoJ intervention provided the catalyst for gold's first lift-off from the $4,000 base; Bessent's Treasury backstop then added fuel to an advance already underway. The interventions did not extinguish the underlying pressures. They exposed them—and, in doing so, reinforced the forces driving gold higher. 

The same energy shock that once forced gold into liquidity sales is now moving with gold rather than against it. This week's equity sell-off adds another layer: stocks fell while gold, oil, and long-term yields rose together. That is not a simple flight-to-safety trade. It is a combination of risk-off, inflationary, and fiscal signals—a more distinctly stagflationary configuration. 

The next leg will not necessarily be linear. $4,600 now needs to establish itself as support rather than prove to have been a temporary spike, while a sustained break below $4,300 would materially weaken the bullish structure. But the more important question is no longer technical. 

Gold is increasingly pricing the widening gap between what governments can credibly promise about their currencies and debt markets and what they can actually deliver. The interventions are themselves becoming part of that price signal: each attempt to contain currency or bond-market pressure produces a temporary market response, while the underlying imbalance quickly reasserts itself. 

And that is ultimately what makes this leg different from the earlier stages of the cycle. Gold is no longer simply rising because investors fear what might happen. It is rising because the market is beginning to price what governments are already doing—and the diminishing effectiveness of their attempts to contain the consequences. 

____

References

-Why Isn’t Gold Acting Like a Safe Haven—Yet? The Gold–Oil Ratio and the Liquidity Stress Behind Early-Crisis Gold Weakness (Part II)—April 5, 2026 

-Why Isn’t Gold Acting Like a Safe Haven—Yet? War, Liquidity Stress, and the Fracturing of the Bullion System (Part I)— March 22, 2026

Why Isn’t Gold Acting Like a Safe Haven—Yet? War, Liquidity Stress, and the Fracturing of the Bullion System (Part I)

 

Nations have scoured the earth for gold in order to control others only to find that gold has controlled their own fate. The gold at the end of the rainbow is ultimate happiness, but the gold at the bottom of the mine emerges from hell. Gold has inspired some of humanity's greatest achievements and provoked some of its worst crimes. When we use gold to symbolize eternity, it elevates people to greater dignity—royalty, religion, formality; when gold is regarded as life everlasting, it drives people to death—Peter L. Bernstein 

In this issue

Why Isn’t Gold Acting Like a Safe Haven—Yet? War, Liquidity Stress, and the Fracturing of the Bullion System (Part I)

I. The Muted Signal

II. Two Gold Markets

III. The Clearing Infrastructure

IV. When Logistics Stress Becomes Financial Stress

V. The Collateral Squeeze

VI. The Dollar as Lightning Rod

VII. Fragmentation, Not Failure

VIII. What the Quiet Is Actually Saying

VIIIA. Post Script: "There is No Haven" 

Why Isn’t Gold Acting Like a Safe Haven—Yet? War, Liquidity Stress, and the Fracturing of the Bullion System (Part I) 

Oil is surging, the dollar is rising—and gold isn’t responding. The explanation lies in liquidity stress, collateral dynamics, and the plumbing of the global bullion system.

I. The Muted Signal 

Long regarded as a safe haven, gold is expected to shine in times of crisis—particularly amid geopolitical shocks such as the escalating tensions surrounding the U.S.–Israel–Iran conflict.

Yet as instability deepens in the Middle East, a curious divergence has emerged. Oil prices have surged, and the U.S. dollar has strengthened, but gold has remained conspicuously subdued. 

For many observers, this raises an uncomfortable question: has gold lost its safe-haven status? 

The answer is almost certainly no. What we are witnessing instead is a familiar—but often misunderstood—dynamic in times of financial stress. Gold does not operate within a single, unified market responding to a single force. Rather, it exists at the intersection of multiple systems—monetary, financial, and physical—each reacting differently under pressure. 

To understand gold’s apparent silence today, one must move beyond the simplistic safe-haven narrative and examine the underlying mechanics of how crises actually unfold. 

II. Two Gold Markets 

Gold is not a single market. It is two markets operating simultaneously. 

The financial layer consists of futures traded on COMEX, forward contracts cleared through the London bullion system, and gold ETFs. Prices here move primarily in response to macro variables: the dollar, real interest rates, and shifts in global risk sentiment.

Figure 1

The resurgence in global gold ETF flows early in the year highlights the responsiveness of this financial layer to momentum, liquidity, and broader macroeconomic signals. (Figure 1, upper chart)

Unlike physical markets, positioning here can expand rapidly and at scale, without the need for underlying physical settlement, largely unconstrained by the frictions of moving and storing metal. Yet this flexibility stands in contrast to the more constrained and regionally fragmented nature of physical gold markets—a divergence that becomes evident when comparing pricing across Shanghai and London. 

The physical layer operates very differently. It consists of doré bars produced by mines, bullion refined in Switzerland, jewelry demand across Asia, and steady accumulation by central banks. This layer depends on transportation networks, refinery throughput, vault logistics, and customs clearance. 

Even at the level of demand, gold is not unified. As shown by the World Gold Council, demand is structurally divided across investment, jewelry, and industrial uses—each driven by distinct economic forces and time horizons. (Figure 1, lower graph) 

Figure 2

Rather than moving in lockstep, Shanghai and LBMA pricing in early 2026 oscillated between premium and discount. This back-and-forth reflects a market where arbitrage is active but not seamless—revealing, in practice, the dual structure of gold as both a financial asset and a physical commodity. (Figure 2) 

Under normal conditions, arbitrage keeps these two layers aligned. When physical premiums emerge in Asia or the Middle East, traders move gold to capture the spread, transmitting local signals back into global benchmarks. But when logistics slow or uncertainty rises, that alignment weakens. Physical markets may tighten even as financial benchmarks remain anchored to macro forces. 

III. The Clearing Infrastructure 

The global bullion system relies on a relatively concentrated infrastructure. 

London dominates price discovery through the clearing system associated with the London bullion market, while Switzerland refines a large share of the world’s doré into internationally tradable bars. Logistics hubs in the Gulf, in turn, connect African supply with major consumer markets in Asia. 

This network typically functions smoothly because gold flows continuously between these nodes. 

Figure 3

In effect, the bullion system operates as a hub-and-spoke network: Switzerland serves as a dominant refining center processing a substantial share of global supply, while London anchors pricing and clearing. This concentration enhances efficiency, but also creates critical points of vulnerability. 

When transport routes are disrupted or regional stability deteriorates, those vulnerabilities become visible. 

Geopolitical tensions in the Middle East have begun to complicate these flows. Even partial restrictions on cargo routes or airspace can slow the movement of metal between mining regions, refineries, and end markets. 

In a system where arbitrage depends on the physical movement of bullion, even modest friction does not simply delay flows—it weakens the transmission of price signals between markets. 

IV. When Logistics Stress Becomes Financial Stress 

Disruptions in the physical gold market rarely remain isolated. 

When the movement of metal becomes uncertain, arbitrage trades that normally link markets turn riskier. Traders who once relied on seamless transfer between regions suddenly face basis risk, as the cost and timing of moving bullion becomes unpredictable. 

Clearinghouses respond in the only way they can: by demanding additional collateral. Margin calls follow. 

To meet these calls, participants often liquidate the most liquid assets available—typically dollar-denominated instruments. 

What begins as a logistical friction in the physical market thus propagates into the financial system, triggering a collateral-driven tightening that can ripple across broader markets. 

Disruptions in the physical market do not remain isolated. 

V. The Collateral Squeeze 

Gold occupies a unique position in global finance. It is simultaneously a commodity, a reserve asset, and a form of high-quality collateral used across derivatives, repo agreements, and bullion banking. During periods of market stress, this collateral role can temporarily dominate its safe-haven function. 

Three mechanisms typically drive this dynamic: 

• Forced liquidation. Institutions facing margin calls sell the most liquid assets available. Gold is often among the first assets sold—not because confidence in it has vanished, but because it can quickly raise cash. 
• Haircut widening. When volatility rises, clearinghouses increase the discount applied to gold posted as collateral. Positions that were previously adequately margined can suddenly require additional coverage, forcing further liquidation 
• Tightening in the gold lending market. Bullion banks regularly lend gold through swaps and leases. Under stress, these channels can constrict as counterparties become more cautious. 

A current illustration of these dynamics comes from Dubai. Recent reports show that shipments of gold have been delayed due to regional logistical bottlenecks, rising insurance premiums, and higher financing costs amid Middle East tensions. 

Physical gold that is stuck or delayed can be sold locally—often at a discount—to meet liquidity needs even while global confidence in gold remains intact. This episode demonstrates how frictions in the physical market can amplify financial pressures, turning bullion into a source of immediate cash rather than a stable safe-haven. 

These collateral-driven dynamics are not unprecedented. Similar patterns emerged during the global financial crisis, the European sovereign debt crisis, and the market dislocations of 2020. In each case, gold initially weakened during the liquidity phase of the shock before later reasserting its safe-haven role. 

Financial instability theorist Hyman Minsky argued that crises often begin with a scramble for liquidity, forcing investors to sell even high-quality assets to meet obligations. Gold’s early weakness during crises—including today’s Dubai example—fits squarely within this pattern. 

VI. The Dollar as Lightning Rod 

A common explanation for gold’s weakness is that investors fled into U.S. Treasuries, strengthening the dollar.

Figure 4

The broader market picture suggests something different. Bond markets have not been rallying strongly. To the contrary, yields across many sovereign markets have risen as investors reassess inflation risk and fiscal sustainability following the oil shock. (Figure 4, upper image) 

The dollar’s strength reflects another mechanism. The global financial system is largely funded in dollars. (Figure 4, lower diagram) 

When volatility rises and leveraged positions unwind, institutions need dollars to meet margin calls and settle obligations. 

Capital flows into the dollar not necessarily because it is safe, but because it is required. The dollar therefore acts less like a haven and more like a lightning rod for global liquidity stress. 

Recent market behavior reinforces this dynamic. Episodes of rising dollar demand have coincided with sharp declines in gold prices and tightening cross-currency funding conditions—an indication that global markets are paying a premium to access dollars. 

These moves suggest that what appears to be gold weakness is in fact a symptom of a broader liquidity squeeze, in which institutions sell liquid assets to obtain dollars needed to meet obligations. 

Figure 5 

Historical patterns support this interpretation. Gold has often declined during the initial phase of major financial stress events, including the global financial crisis and the pandemic shock, before rallying as liquidity conditions stabilize. (Figure 5) 

Even gold can be temporarily liquidated in this environment, illustrating how financial liquidity dynamics can dominate its intrinsic safe-haven appeal. 

VII. Fragmentation, Not Failure

Figure 6 

Another structural trend may be shaping gold’s muted response. 

Central banks continue to accumulate gold, extending a multi-year pattern of reserve diversification, although the pace of purchases has moderated in recent months. (Figure 6) 

This suggests that while the strategic bid for gold remains intact, accumulation is becoming more measured—less urgent, more sensitive to price and liquidity conditions. 

At the same time, new trading corridors have gradually developed outside the traditional Western clearing system. Asian markets frequently trade at premiums to London, while regional demand and policy dynamics increasingly influence the movement and pricing of physical gold. 

Taken together, these developments point to a gradual shift toward a more multipolar bullion market. Disruptions to established logistics routes may accelerate this transition, encouraging alternative trading channels and settlement infrastructure. 

This signal that the architecture of the gold market is evolving—away from a single, tightly integrated system toward a more fragmented landscape, where multiple hubs and pathways shape pricing, flows, and accumulation decisions. 

While the trajectory of central bank gold policy remains uncertain under current conditions, a stronger dollar and rising fiscal demands—whether from defense spending or domestic support—may incentivize some central banks to mobilize gold reserves for liquidity. 

Yet these same conditions—intensifying geopolitical fragmentation and rising monetary risk—may reinforce the opposite impulse: to accumulate gold as insurance, as a hedge against currency volatility, or as part of a broader strategy of reserve diversification away from the dollar. 

This tension reflects a deeper uncertainty. Whether central banks become net sources of liquidity or continue as structural buyers will depend on how the current crisis evolves—whether it remains a liquidity event or transitions into a broader monetary regime shift. 

VIII. What the Quiet Is Actually Saying 

Gold’s muted reaction to current geopolitical tensions is not a failure of its safe-haven role. It is a signal—just not the one most investors are looking for. 

What we are observing is the early phase of a crisis in which liquidity demand, dollar funding pressures, and market microstructure dominate price formation. In this phase, assets are not repriced based on long-term risk, but on immediate funding needs. 

History suggests that these phases do not persist indefinitely. Energy shocks, financial stress, and monetary instability tend to unfold sequentially, not simultaneously. 

If current tensions deepen into broader economic and financial disruption, the forces suppressing gold today may reverse. The same mechanisms driving liquidity demand—margin calls, collateral tightening, and dollar scarcity—often give way to monetary easing and balance sheet expansion. 

It is typically at that point—not during the initial scramble for liquidity—that gold reasserts its role. 

The signal is not absent. It is delayed. 

Gold is not failing as a safe haven—it is being temporarily subordinated to the needs of a dollar-based financial system under stress 

VIIIA. Post Script: "There is No Haven" 

Recent market behavior reinforces this interpretation. In the past week, the dollar, gold, U.S. Treasuries, bitcoin, and oil have all weakened simultaneously. 

In normal circumstances, at least one of these assets would function as a refuge. When all of them decline together, the signal is different: markets are not seeking safety—they are seeking liquidity. 

In other words, the system is still in the scramble-for-cash phase of adjustment or at times like this, markets behave as if no haven exists at all.

 

Has the Phoenix Risen? Gold Prices Barrels Through $1,400, a Six-Year High; Be Bullish on Gold Mines!

Has the Phoenix Risen? Gold Prices Barrels Through $1,400, a Six-Year High; Be Bullish on Gold Mines!

No international agreements, no diplomats, and no supernational bureaucracies are needed in order to restore sound monetary conditions. If a country adopts a noninflationary policy and clings to it, then the condition required for the return to gold is already present. The return to gold does not depend on the fulfillment of some material condition. It is an ideological problem. It presupposes only one thing: the abandonment of the illusion that increasing the quantity of money creates prosperity—Ludwig von Mises, Economic Freedom and Interventionism

Gold Prices Soar to 2013 Highs: Expectations of Fed’s Easy Money Policies?

From the CNN: Gold bugs are finally having a moment. The price of gold topped $1,400 an ounce Friday. That's the highest level since September 2013. The price of gold is now up nearly 10% this year. Gold has gained momentum thanks to expectations of a rate cut by the Federal Reserve as soon as next month. Rate cut hopes have helped push the dollar lower -- and gold tends to rally when the dollar gets weaker because that makes it more attractive to foreign buyers.

From AFP/Philstar: The Federal Reserve opened the door to an interest rate cut on Wednesday, vowing to act to keep the economy growing as uncertainties about trade and other issues mount. US Federal Reserve chief Jerome Powell said trade friction and slowing growth worldwide have led many central bankers to feel the case for an interest rate cut has "strengthened" but most still want to see more data before making a move. But one policymaker dissented in the vote, advocating for an immediate cut -- something President Donald Trump has been calling for loudly and which many economists say is necessary given the damage done by the escalating trade frictions. Hasn’t the decade long growth of US economy been the longest. (bold added)

The US is poised to register the longest economic expansion on record next month, but by far has been the weakest.  Powell’s Fed just raised policy rates last December, and now they’re contemplating cuts, why?  Because US Federal Reserve chair Jerome Powell accommodated on the wishes of US President Donald Trump who threatened to him with demotion?

And why a turnaround from ECB’s Mario Draghi who proposed to "cut interest rates again or provide further asset purchases if inflation doesn’t reach its target"?

Didn’t US President Trump throw the gauntlet of the risk of a currency war by accusing ECB’s Draghi of “currency manipulation” for announcing the likelihood of ECB’s monetary easing?

Wouldn’t these imply an escalation of policy uncertainty for the global economy, aside from trade friction?

The Panic Bid on Global Treasury Markets!

And why the panic bid over global bonds?

Figure 1

The global stock of negative yielding bond exploded to $13 trillion by the end of the week, backed by a one-day record flow of $700 billion! (figure 1, top window)

It’s been a race to the lowest yield for global bonds. (figure 1, middle window) Why?

The global money supply is at a record high but in the context of the US, money supply expansion has led to lower monetary velocity, depressing statistical inflation, and the estimated economic output.  (figure 1, lower window)

Has the global money supply expansion been reflecting the escalation of financial repression; inflating asset prices and debt stock coming at the expense of the real economy?

Has the panic buying of global bonds been symptomatic of an escalation of deflationary expectations?

And or, have the global fixed income community been front-running global central banks in expectations of a coming financial bailout through the revival of large scale asset purchases (LSAP) or quantitative easing (QE) via massive bond buying?

Has moral hazard become deeply entrenched to have plagued the global fixed income markets?

And if the fixed income markets expect global central banks to respond aggressively to a sharp deterioration of economic conditions, why has the stock market diverged from this perspective?

Have financial markets become utterly dysfunctional from frequent backstops, manipulations and interventions?

Have financial markets been so enamored or mesmerized by the perceived power of the central banks to stabilize financial and economic conditions? (the Halo effect)

And have financial markets been kept blissfully blind from the escalating entropy of the real conditions?

As Doug Noland of the Credit Bubble Bulletin aptly puts: “Today’s prescription for unstable markets and finance: more monetary stimulus. For unstable economies: more monetary stimulus. For inequality, trade wars and geopolitical uncertainties: much more monetary stimulus.”

Soaring Gold and Treasury Prices: The Liquidity And Fear Trade

Have the Fed-led global central banks been truly in control of the markets?

Figure 2

Yield curve inversions have afflicted not just the US treasury markets such as the 10-year 3-month and the 10-year Fed Fund Rate, but also the US Libor curve, and the Eurodollar futures.

Haven’t these been indicative of TIGHT monetary conditions?

And hasn’t the collapse of the spread of 10-year Fed Fund been a dynamic even before Trump’s “trade wars”?

Figure 3

And what just happened to the Fed’s floor system? The Effective Fed Fund rate has been drifting ABOVE the Interest on Excess Reserve (IOER) since April, the latter which is supposed to serve as a ceiling. (figure 3, top window)

And why have primary dealers have been massively hoarding US treasuries? Have collateral issues been intensifying? Have surging gold prices been a manifestation of an ongoing rapid depletion of liquidity, through a growing scarcity of collateral (rising repo fails), to inspire “fear trades” in both gold and government treasuries? (figure 3, middle and lower windows)

Has the volte-face of the FED been from these liquidity risk factors?

Why have these occurred if the Fed and central banks have been in control?

If so, has gold been pricing in magnified risks of a global economic and financial shock?

To add, geopolitical risks have been mounting.

For instance, though US President Trump had second thoughts to bomb Iran, in retaliation to Iran’s downing of US drones, he ordered a cyber assault on Iran’s military facilities instead. Bombs struck two oil tankers from unknown sources in the Strait of Hormuz, but the US government lays the blame for this on Iran. And this may be another reason for Trump's aborted bombing. The Indian government sent warships to protect its shipping interests.

Hong Kong’s mass protest against the extradition bill had blamed by the Chinese government on Western interference.

The Italian government desires to control its central bank by asking for legal powers to make the appointments of the members of the Bank of Italy.

Which will be proven right in a not so distant future (perhaps 2H of 2019?), the Gold-Treasury Fear Trade or the Risk-ON Equities?

Gold Price Ramp in Other Currencies, Philippine Peso Based Gold Prices Approach Record High

Figure 4

Gold prices in USD crossed the 1,400-threshold for the first time since September 2013.

Surging gold prices have become apparent everywhere.

Gold prices in the Philippine peso (upper window) soared to 2012 highs and may be testing the all-time 2011 peak soon.

Meanwhile, gold prices in the Malaysian ringgit (lower left) and the Indonesian rupiah (lower right), among the many others, raced to new records.

Though the USD will remain the benchmark against gold, individual currencies will perform distinctly relative to gold.

An uptrend in gold prices should manifest in most currencies.

Mining Investments: Be Fearful When Everybody Is Greedy And Greedy When Everybody Is Fearful!

From an investment/market point of view, global gold mining stocks were on fire this week.

Figure 5

The FTSE Gold mines surged 7.6% this week and posted a 21.58% return for the year. (Figure 5, upper window, from US Global Investors)

Meanwhile, the NYSE Gold Bug Index (HUI) soared 9.35% over the week, constituting almost half of its 18.31% 2019 return.

The Philippine mining index was higher 2.12% (-10.93% y-t-d) this week primarily from gains of gold mines. For the week, Philex Mining bested the field up 10.65%. Apex Mining’s +7.44% came in second, then United Paragon’s +4.62%, Lepanto +3.6% and Manila Mining +2.7%.

With the passage of the BSP’s Gold Bill, the war on gold has ended, which should reduce political uncertainty and risk of the sector. [See Bullseye! NG-BSP Admits that the War on Mining Has Failed, the BSP’s Gold Bill is Now a Law! May 26, 2019]

Therefore, a sustained uptrend in gold prices should benefit the underappreciated and highly unpopular industry.  

As Warren Buffett advised, Be fearful when everybody is greedy and greedy when everybody is fearful.

It is time to apply the same formula to the mining sector.

Fear will remain the dominant sentiment over an extended period. As such, returns should outperform as risk diminishes.

In the fullness of time, mines will become a mainstream bubble similar to its previous cycle (2004-2012) which climaxed in 2012.

Let me share a truncated refined excerpt (from my MDR report) for a potential exposure to Apex Mining [PSE: APX]:

APX provides three buying windows which are all dependent on the success of the seed, or the recent breakout.

The first window is at the present levels (1.25 to the early 1.30s), representing an eight-month downtrend.

The second is the three-year (2016) resistance (1.40-1.50).

The third is on the psychological threshold the two-year high of Php 2.

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Nota Bene: A sustained upside of the international prices of gold ultimately determine the feasibility of the gold trade.

Be greedy when everybody is fearful.