The price of gold has increased rapidly in the months since Trump took office, surging particularly since his April 2 announcement of a baseline 10 percent tariff on all US imports. Gold has often been regarded as a safe-haven asset during times of economic uncertainty. When the economy is shaky, investors put more of their money into gold to preserve their wealth and protect their portfolios. 

Gold typically has an inverse relationship with interest rates. When interest rates go up, the value of gold often goes down. The reason for this is that higher interest rates make other investments, such as stocks and bonds, more attractive to investors, thereby decreasing the demand for gold and subsequently its price. Should this trend continue, lower interest rates could affect the economy in several ways. 

1. Lower interest rates make it cheaper to borrow money. This tends to encourage spending and investments.
2. Lower interest rates will reduce the monthly costs of mortgage repayments. This will leave households with more disposable income and potentially cause a rise in consumer spending. 
3. Lower interest rates make it more attractive to buy assets, such as houses, land, vehicles and businesses. This will cause a rise in prices and therefore a rise in wealth. 

Gold maintains its intrinsic value better than any other commodity. It remains our best barometer of monetary trouble. A sustained rise in gold prices typically signals inflation; a price decline indicates deflation—a shortage of dollars. 

According to Forbes, The Federal Reserve fundamentally misunderstands inflation. Monetary inflation results from reducing a currency's value, by creating too much of it. Non-monetary inflation occurs when prices rise due to production disruptions: natural disasters, wars, pandemic lockdowns that severed supply chains, costly regulations, or certain tax increases.

Gold has climbed over 60% since mid-2023, during the very period when the Fed claimed to be fighting inflation through interest rate hikes. The Fed's flawed thinking lies in its belief that prosperity causes inflation. Per the Fed’s reasoning, in order to lessen  inflation, then the economy needs to be slowed. This approach fails to account for non-monetary price changes or the consequences of a weakening dollar.

Stabilizing the dollar appears to be a better approach to fight inflation. The Federal Reserve should focus on returning to a “gold-backed” standard for the dollar. By focusing on dollar stability rather than manipulating interest rates, the Fed could end inflation without causing economic contraction. This addresses the monetary cause directly rather than attempting to slow growth—a strategy that inevitably causes unnecessary economic pain.

The warning from the gold market cannot be ignored much longer. The question is whether the Fed will heed it before it's too late.

Tickers to consider:    JTAI, VNRX, ZVSA, FBRX

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