This is not a sign of a healthy economy. When gold prices shoot up, it’s a sign that people are losing faith in the dollar, which undergirds the global economy in roughly the same way that gold did before President Richard Nixon took the United States off the gold standard in 1971. Investors call wealth transfers into gold a “debasement trade,” where what’s debased is the asset from which investors flee. In this instance, that’s dollars and U.S. bonds.
Don’t worry, I don’t actually believe the price of gold is a conspiracy by right-wing media. Rather, it’s a vote of no-confidence in the United States economy. Debasement trades usually happen in bad economic times. Gold prices jumped during the Covid recession and the Great Recession of 2007-09. This time they’re rising faster. Gold futures haven’t risen so fast since 1979, when the misery index (unemployment plus inflation) reached 19 percent.
What’s causing gold to rise is a falling dollar. After rising during the final three months of President Joe Biden’s administration, the dollar started falling the week before Trump’s inauguration, and today it’s down about 10 percent. We haven’t seen the dollar fall this fast since Iran was ruled by a Shah. There are some benefits. When the dollar’s value falls, imports become more expensive and exports become less so. When Trump entered office, the consensus was that the dollar was overvalued. Some people think it still is.
Why are people buying gold instead of government bonds? Paul Krugman says it may be because
Krugman didn’t even mention Trump’s habit of threatening periodically to default on U.S. Treasuries, a proposition the business press copes with by pretending it doesn’t happen. Perhaps most alarming of all, billionaire oligarchs—which is to say, the people whose livelihood is most dependent on the health of the financial sector—are going long on gold, according to Axios. That’s like a restaurateur deciding not to eat at his own restaurant.
None of this means the economy is on the brink of collapse. The patient is not going to die. But it has acquired the new chronic disease of gold-hoarding, and Trump is largely to blame. The “gilded rococo nightmare” of Trump’s Oval Office, in addition to being vulgar and un-democratic, is now becoming a symbol of his gross economic mismanagement.
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