When gold finally broke down it wasn’t a dramatic change in market dynamics, it was the erosion of the idea support gold since the crisis.
Hyperinflation was always the underpinning of the gold rally. Sure, there were others ideas floated by the cave-dwelling gold bugs like government confiscation and a breakdown in society but runaway prices due to central bank printing was the main thesis.
Five years of zero-percent interest rates and trillions of dollars of printing later, the inflation still hasn’t materialized. Even the biggest hawks have given up worrying about rising prices.
Two of the perma-hawks on the FOMC are Richmond Fed President Jeffrey Lacker and Dallas Fed President Richard Fisher. Those two were so worried about inflation that they were dissenting in favor of higher rates as the crisis was bearing on the economy in 2007. Lacker was dissenting again in 2012 due to dovish forward guidance.
In the past month, both have given up any inclination that inflation is coming. Lacker said he doesn’t see any inflation in the next 18 months and noted the potential for disinflation. Fisher said there is no inflation in sight.
The gold bulls gave up in the same way that Lacker and Fisher did. Gold yields nothing and with US stocks hitting an all-time high, the eroded foundations of the gold market finally cracked.
