WHY IS GOLD FALLING? IT IS PAYING SOMEONE ELSE’S DEBT

Why is gold falling? It is paying someone else’s debt.

There is war, inflation, uncertainty, and people are afraid.

In such circumstances, gold is considered a safe haven and should have been rising.

Yet gold fell.

And not on its own. It fell alongside stocks and Bitcoin.

There is a simple rule behind this.

In a panic, people do not sell what they want to sell. They sell what they can.

And what they could sell was gold.

The reason is someone else’s debt.

Think about it.

Companies issue stocks, governments issue bonds, and central banks issue money.

Behind all of them is a promise made to someone, in other words, a debt.

But behind gold, there is no one. Gold owes nothing to anyone.

That is why it always has buyers and can be easily converted into cash at any moment.

And when cash is suddenly needed, gold is what gets sold.

So why was cash suddenly needed?

Artificial intelligence has become the biggest bet of the past two years.

Investors have often bought these stocks with borrowed money.

In the United States, margin debt hit a record $1.5 trillion in June.

When these stocks fall, brokerage firms demand additional collateral.

Those who cannot put up the money are forced to sell other assets they hold.

At this point, people sell gold that is in profit rather than stocks that are at a loss.

Because selling a losing position makes that loss permanent.

This is what is pushing gold down. Not its own weakness, but a debt that has to be paid off.

Moreover, this bet is not as solid as it appears.

Artificial intelligence companies lend money to one another and use the same money to buy from each other.

If one of them cannot pay, the entire chain can break backward.

The IMF has also warned that falling valuations could trigger margin calls and forced selling.

There is another pressure weighing on gold.

War has made oil more expensive, inflation has risen, and the Fed has raised interest rates for the first time in three years.

When interest rates rise, holding gold, which generates no income, becomes more expensive.

The likelihood of another rate hike in December is also high.

We have seen this before.

During the 2008 crisis, gold initially fell by around 30%.

The reason was not a loss of confidence. It was people’s need for cash.

Once the crisis passed, gold hit a record high in 2011.

The same thing happened in 2020. Gold fell first, then reached a peak months later.

Gold falls first during a liquidity crisis, then rises.

And today, we know who is selling.

Indebted funds are selling gold.

At the same time, central banks continue buying.

In other words, those selling gold have not abandoned it. They have been forced to pay off their debts.

Gold is not falling because the reasons people buy it have disappeared.

It is falling because cash is needed today.

And that cash is going toward paying off someone else’s debt.

The American banker J.P. Morgan said before Congress in 1912:

“Gold is money. Everything else is credit.”

Gold is falling today because it is paying the price of credit, in other words, debt.

I am following developments. I will keep you informed.

Kaynak: Penguin X (@ThePenguinBTC)