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 drawing a simple analogy.

The paths do seem similar: Middle East conflict, rising oil prices, inflation concerns, gold initially rising then falling. By coupling and comparing the candlestick charts, it appears to be a straightforward story.

But upon deeper analysis, the entire world’s operating logic and macro expectations have undergone earth-shaking changes. Discussing K-line 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 were twofold, following the Iranian Revolution.

First, the Federal Reserve drastically changed the game with extreme rate hikes. After Volcker took office, interest 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 reflowed back into the US credit system. As the Cold War eased, US-Soviet confrontation no longer intensified, and the US began to lead unipolar dominance. By around 1982, markets were trading on the expectation that the US would restore global order, capital flowed 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 US 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.

The reality today is that US debt has expanded to its limit, fiscal deficits have been long out of control, and the entire financial system is highly sensitive to interest rates. Not lowering rates is already a form of tightening.

A more fundamental structural change is that, back then, gold fell partly because global capital re-placed its trust in the US.

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 US influence in the Middle East wanes, if oil no longer remains stable and dollar-denominated, or if involved countries start to choose different settlement methods, the issue is no longer just oil prices but: the entire cycle of petrodollars could be destabilized.

This narrative reveals cracks; the foundation of US credit is no longer solid. The traditional “gold as a safe haven” narrative 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 system being challenged and potentially overturned. Back then, “capital reflow,” now it’s “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 funds are beginning to realize gains, leading the market into rebalancing.

Variables of change

Returning to the beginning, comparing today’s gold candlestick charts with those of 1979 is of no real value, but the “changing variables” behind them are worth deep reflection.

In 1979, the US 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.

Spillover of conflict, unpredictable shifts in policy, sustained high energy prices, the US no longer able to control inflation through interest rates—perhaps the entire credit system will be revalued.

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