Gold: The Giant Put on the System and the Faith of the Fragile

Witnessing the increasingly wild swings in gold prices—especially those sharp, gut-wrenching moves to the downside—has me questioning my portfolio decisions. At the same time, Bitcoin prices have been relatively stable, and I can’t help but wonder: Have I become a full-blown gold bug? And if the answer is yes, then why? Is it because I’ve turned into a hardcore market nihilist, completely doubting the efficiency of market pricing? Or maybe I’m just too scared to follow the animal spirits of the market.
“Just go long on the S&P 500, you idiot,” I think to myself. But then I look at the numbers: a 3.5% earnings yield in an increasingly concentrated market, in an overly leveraged and volatile world, with the risk of sticky inflation, a war in Eastern Europe spiraling into something bigger, and all of this underpinned by unproven technological advances. Does that sound like a no-brainer? Not really.

Yesterday was one of those moments when I tried to wrap my head around the sudden drop in gold. The answer didn’t come right away. Ok, Scott Bennet—a Wall Street guy—gets nominated as the next U.S. Treasury Secretary. Was that really a shock? Would it change the game that much? Can we really say that the other candidates nominated would be any less market-savvy or strategic about preserving the U.S.-led global financial order? But the key difference with Bennet was his emphasis on a 3% deficit target—apparently, a point he highlights in private conversations, according to the press.

Of course, one might ask how much power and influence Bennet will actually have in the face of the current inertia—marked by an increasingly unsustainable fiscal path—and the likely extension of Trump-era tax cuts.

The recent decline in Treasury yields also seems to reflect market anticipation of a more fiscally sound U.S. administration. Investors appear to be hedging on the idea that Bennet’s approach might succeed, even partially. But here’s the thing: gold’s fate now seems inextricably tied to how the next administration manages the balancing act of cutting deficits while simultaneously extending tax cuts. That’s no easy feat, mind you.

When you see the wild swings in gold prices, it becomes clear that this isn’t just about gold itself—it’s about what it represents: a giant put option on the fragility of the current global financial architecture. Everyone knows the system is fragile, hanging on by a thread. Fractures in trade, capital flows, and geopolitics are obvious. So when there’s even a hint of fiscal discipline or a more stable outlook, the value of that “put” takes a hit.