Original | Odaily Planet Daily (@OdailyChina)

Author｜Xiao Fei

Today, many bloggers are trying to use events from 1979 to understand the recent fluctuations in gold prices.

The paths do appear similar: Middle Eastern conflicts, rising oil prices, heightened inflation, and gold first rising then falling. By simply comparing K-line charts, it seems possible to draw conclusions.

However, upon closer examination, the operational logic of the world and macro expectations have undergone tremendous changes. Discussing K-lines on paper is meaningless, yet exploring the underlying fundamentals can provide us with insight.

Using History as a Mirror: Events from 1979

The key events of 1979 were two happenings that followed the Iranian Revolution.

The first event was the Federal Reserve's extreme interest rate hikes, which directly changed the entire game rules. After Volcker took office, interest rates were pushed up to nearly 20%. At such a high interest rate level, holding cash became the best asset, while gold, which yields no returns, was systematically abandoned.

The second event was the global capital returning to the American credit system. The Cold War entered a détente phase, and the U.S.-Soviet confrontation no longer escalated; the U.S. began to move toward unilateral dominance. By around 1982, the market was trading based on the expectation of "the United States re-stabilizing the global order," leading to capital returning to dollar assets and gold losing its support.

As a result, the significant rise and subsequent fall in gold that year were due to soaring interest rates + strong U.S. credit, with prices being suppressed by the reconstruction of the authoritative system.

Today and Tomorrow: The System is Loosening

When applying the same logic to today, the key variables are exactly the opposite, as we stand on the edge of a cliff on the other side of the mountain.

The current reality is: the scale of U.S. debt has expanded to its limit, fiscal deficits are long out of control, and the entire financial system is highly sensitive to interest rates, not lowering rates is already considered tightening.

What is even more noteworthy is the change in the underlying structure; another reason for the decline in gold at that time was the global capital once again believing in the United States.

However, the nature of today's Middle Eastern conflict is entirely different; it is not a localized event that can be quickly resolved through negotiation (even though Trump occasionally spouts nonsense), but has even evolved into a system that constantly reinforces itself. This conflict creates cyclical outcomes and interplay: energy is impacted, shipping is disturbed, costs are pushed higher, and finances are dragged down, with all participants locked into this structure.

Moreover, this conflict touches the most core part of the dollar system—energy. If the U.S. control in the Middle East declines, if oil is no longer stable in dollar pricing, or if relevant countries begin to choose alternative settlement methods, the problem will extend beyond oil prices to: the very cycle of petrodollars being shaken.

This narrative fracture destabilizes the foundation of dollar credit. The "gold hedging narrative" we have always understood is, in essence, a hedge against this credit system.

This comparison becomes quite intriguing.

Forty years ago, gold retracted because that system became stronger. Now, the decline occurs amid the challenge and disruption of the system itself. Back then it was "capital returning," and now it is "capital searching for a new anchor."

Today's gold is more akin to a stage release: the significant rise has already priced in the conflict and inflation, and short-term capital is beginning to realize profits, with the market entering a rebalancing phase.

Changing Variables

Returning to the beginning, comparing the 1979 gold K-line with today's has no value, but the “changing variables” within are worth contemplating.

In 1979, the dollar was the answer; in 2026, the dollar is also being repriced.

How conflicts transmit through energy to inflation, how inflation affects interest rates, and how interest rates change asset pricing—those logics have changed. Today's world has become more absurd and complex, far from the one where a single extreme interest rate hike could re-stabilize the order.

With the overflow of conflict, Trump's capriciousness, and energy prices remaining elevated, the U.S. may no longer have the capability to suppress inflation with interest rates; the world might reassess the entire credit system.

By that moment, gold will also take on a new role.

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