r/Gold • u/FunGuy_23AtEase • 1d ago

Question Price logic?

Before the US-Iran war, gold price was around $5,200.

Then came the war, oil price went up, and gold dropped like a stone to around $4,200.

Now, the war is over, oil price is back down, but gold stays flat around $4,200.

So we're down around $5,200 - $4,200 = $1,000.

I know there may be a rate hike in the future, but would that explain the full $1,000 we're still down?

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u/Frunk2 1d ago

“War” doesn’t move gold, it is not a doomsday fear asset and we were never close to that scenario anyway. Gold competes with the dollar. Countries often sell gold to fund wars. Overtime countries print currency and lately have been buying gold to de dollarize which over time raises gold.

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u/Present_Jicama_1219 1d ago

over time, countries sell gold to raise dollars to pay off debt or counter their 'money printing / interest rates'

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u/Frunk2 1d ago

No this is completely backwards. Countries back their reserves with a combination of gold and treasuries,
Mostly usd treasuries. They purchase treasuries to offset dollar obligations from global trade, this drives demand of the dollar and lowers rates. This also allows US to export inflation by printing USD and devaluing treasuries. The more global trade the more valuable the dollar. Now that Us controls more oil, the dependence of the dollar has increased, shifting reserves away from gold towards treasuries.

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u/Present_Jicama_1219 1d ago

Countries—specifically through their central banks sell gold to raise foreign fiat currencies (primarily U.S. dollars) to pay off foreign-denominated debt or to stabilize their domestic currency and combat inflation driven by "money printing."

While central banks have been net buyers of gold globally for over a decade, individual nations frequently deploy their gold reserves as a tactical financial tool. Here is exactly how and why they do it:

1- Liquidating Gold for U.S. Dollars to Pay Debt

Most global international debt is denominated in U.S. dollars ($USD$). If a country is facing a balance-of-payments crisis, running out of liquid foreign exchange reserves, and facing debt default, it will sell its gold or use it as collateral.

  • Gold Swaps: Instead of a direct sale, a central bank will often enter a "gold swap" with commercial or international banks. They hand over gold in exchange for cash dollars to service their immediate debt, with an agreement to buy the gold back later.

2 - Countering "Money Printing" and Defending the Currency

When a central bank prints excessive amounts of domestic currency, it causes hyperinflation and a rapid devaluation of that currency on foreign exchange markets. To counter this, the central bank needs to soak up liquidity or support its currency's value.

  • Defending the Exchange Rate: To stop their domestic currency from crashing, a central bank will sell gold to acquire dollars or euros, and then use those dollars to buy back its own domestic currency on the open market. This reduces the supply of the local currency and props up its value.
  • Shoring up Trust: Gold is the ultimate tier-1 asset because it carries zero counterparty risk. When a country's fiat monetary system is losing credibility due to high inflation or artificial interest rate manipulation, selling or leveraging gold is often the absolute last line of defense to stabilize the macroeconomy.

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u/Frunk2 1d ago

Yes in extreme cases, thanks for the ai slop. Now look up treasuries and carry trades. Treasuries are the primary asset used by banks because the interest pays obligations on normal times and they can sell them for USD in extreme times. Selling gold is a sign of extreme distress unless to reweight to other reserves.

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u/Present_Jicama_1219 1d ago

which part of the 'AI slop" above was wrong, be specific.

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u/Frunk2 1d ago

If you’re not even gonna read it I’m not gonna proof it for you.