The Gold Plunge That Changed Nothing

💡Gold's 65% return in 2025, the highest annual gain since 1979, was driven by a "safe-haven plus FOMO" sentiment. This surge occurred amidst global market disruptions from geopolitical events in Venezuela, Iran, and Greenland, alongside Trump's interference with Federal Reserve independence, pushing gold above $5,000 per ounce.

💡Geopolitical disruptions in Venezuela, Iran, and Greenland, coupled with Trump's interference with Federal Reserve independence, drove gold above $5,000 per ounce in 2026. This environment fostered a "safe-haven plus FOMO" sentiment among investors, contributing to the significant price increase.

💡CME's regulatory actions, specifically consecutively raising margin requirements, significantly contributed to the silver price collapse by exacerbating liquidity issues and forcing mechanical position closures. This intervention created a liquidity stampede, particularly during contract rollover with thin liquidity, which historically has catalyzed silver price collapses, similar to the 1980s Hunt Brothers incident and 2011 events where margins were raised five consecutive times.

💡Kevin Warsh's nuanced monetary policy stance combines superficial hawkish and dovish elements; he advocates for shrinking the balance sheet in exchange for rate cuts. Warsh believes AI-driven productivity growth possesses disinflationary properties, eliminating the need for the Fed to suppress demand with high rates, and aims to rebuild fiscal discipline and restore Federal Reserve credibility by redirecting credit resources to the real economy.

💡Near-term quantitative tightening by the Federal Reserve is considered unlikely despite hawkish rhetoric due to significant feasibility issues, primarily liquidity and fiscal constraints. The Fed recently resumed bond purchases to ease year-end liquidity tensions, making balance sheet reduction challenging without pushing overnight rates above target. Additionally, fiscal expansion preferred by the Trump administration contradicts balance sheet reduction, as the Fed has become a major Treasury buyer.

💡Two major factors hinder the Fed's ability to implement significant balance sheet reduction: liquidity constraints and fiscal constraints. Liquidity constraints are evident as the Fed recently resumed bond purchases, and further withdrawal would push overnight rates above the target corridor, particularly during the April tax season. Fiscal constraints stem from the Trump administration's preference for fiscal expansion, meaning Fed withdrawal would complicate fiscal operations given the weakened market appetite for Treasuries.

💡The 'interest rate ceiling' concept refers to the invisible limit on central banks' ability to raise rates against inflation due to high global public debt structures, specifically to avoid debt default and unanchored inflation expectations. This constraint can lead central banks into a deadlock during severe recessions, where fiscally permissible rates fall below the "zero lower bound," preventing effective rate adjustments for either suppressing inflation or stimulating rescue.

💡The S&P 500's nominal returns, exceeding 135% since 2020, have masked a significant decline in real value when measured in gold terms, with a nearly 30% decrease. Similarly, holding US 10-year Treasuries produced approximately 33% lower real returns in gold terms. This indicates that nominal asset price growth largely stems from "monetary illusion" rather than genuine gains in real value or purchasing power, highlighting long-term fiat debasement.

💡Two likely scenarios for the future of the international monetary system beyond dollar dominance are the continued dominance of the dollar, where gold persists as a hedge against declining fiat purchasing power and its portfolio allocation value rises; and the emergence of a multipolar currency system, where new orders take shape through multilateral mechanisms like mBridge, with countries increasingly incorporating "gold reserve quantities" as national-level credit backing.

💡Gold will continue to play a core role in both extended dollar hegemony and a multipolar currency system by acting as a hedge against declining fiat purchasing power. In a dollar-dominant scenario, its portfolio allocation value will rise. In a multipolar system, countries may increasingly incorporate "gold reserve quantities" as national-level credit backing to avoid disproportionate influence from single nations, ensuring gold's strategic importance.