Gold's Price Rebound: A New Era of Dollar Debasement

Gold's price briefly touched $5,600 an ounce in January due to expectations of US Federal Reserve rate cuts and central bank buying. However, a reversal occurred as the West Asia oil shock strengthened the dollar instead of weakening it.

The higher energy prices revived inflation fears, lifted Treasury yields, and created a scramble for dollars. Fed Chair Kevin Warsh dashed hopes of imminent easing, while three policymakers dissented in favor of a rate increase.

A crowded consensus trade became a rush for the exits as gold fell more than 25% to below $4,100.

The US is caught in a fiscal-monetary zugzwang, where keeping rates high makes refinancing increasingly painful, while cutting rates risks reigniting inflation and weakening the dollar.

America's record $40 trillion debt, with annual interest costs exceeding defense spending, is putting pressure on Treasury yields. Traditional price-insensitive buyers have disappeared, with foreign private purchases of Treasuries falling sharply and foreign official institutions selling.