What’s Really Driving $GLD? It’s Not Gold - It’s the Dollar
At first glance, the rise in gold prices might appear to represent a surge in investor enthusiasm or demand for the metal itself. Yet a closer look reveals that gold’s apparent ascent is, in large part, a reflection of the U.S. dollar’s decline. Gold is not soaring, the measuring stick is shrinking.
When a currency loses purchasing power, it takes more units of that currency to buy the same quantity of goods or assets. This fundamental concept explains much of gold’s price movement in nominal terms. The dollar has been steadily eroded by inflation, deficit spending, and persistent monetary expansion. As the Federal Reserve continues to navigate a fragile balance between growth and debt sustainability, the purchasing power of the dollar continues to decline, and gold, priced in dollars, merely exposes that reality.
Historically, gold has served as a stable anchor in times of monetary uncertainty. It carries no counterparty risk and cannot be created by decree. In contrast, fiat currencies are inherently political tools, responsive to fiscal necessity rather than long-term value preservation. Since 1971, when the U.S. abandoned the gold standard, the dollar has lost roughly 85–90% of its purchasing power. During that same period, the nominal price of gold has increased more than fifty-fold, yet its real value, when adjusted for money supply growth, has remained comparatively steady.
This insight reframes the narrative around gold. The important question is not how high gold can go, but how far the dollar can fall. The gold market, in this light, becomes less a story about investor optimism and more about systemic fragility, a reflection of confidence (or lack thereof) in the global monetary order.
Ray Dalio has described this dynamic as a “paradigm shift,” where excessive debt accumulation, widening fiscal deficits, and geopolitical tension erode faith in fiat systems. In such cycles, gold often re-emerges as a neutral store of value, not because it generates yield, but because it represents stability when paper claims lose credibility.
This perspective carries profound implications for investors. Wealth protection is not about timing market peaks or chasing speculative returns; it’s about preserving purchasing power across cycles. Understanding this requires stepping back from the day-to-day fluctuations and recognizing the underlying mechanism, how monetary policy, fiscal expansion, and debt monetization gradually distort value itself.
In essence, the rise in gold is a mirror, not a movement. It reflects the slow erosion of trust in the dollar and the broader recognition that real wealth cannot be printed. As global capital searches for safe harbor in an age of leverage and uncertainty, gold remains the asset that doesn’t promise — it simply is.
Sources
Dalio, R. (2021). Principles for Dealing with the Changing World Order. Simon & Schuster.
U.S. Bureau of Labor Statistics (2025). “Consumer Price Index Summary.”
World Gold Council (2025). “Gold Demand Trends Q2 2025.”
Federal Reserve Bank of St. Louis (FRED). “M2 Money Stock.”
Benzinga (2025, September). “Ray Dalio Warns of 1970s-Style Currency Shock.”
International Monetary Fund (2024). Global Financial Stability Report.
