Gold is not only rising. It is acting in a way that has not been common since the 1970s. Felix Prehn of Goat Academy explains this move as a three-phase shift. Each phase has different drivers. That matters because it helps people understand why gold can rise, not just that it rises.
Phase 1: Quiet buying by central banks
In the first phase, big institutions buy gold slowly and steadily. A key reason is reserve risk. A reserve is a country’s savings held in assets like currencies and government bonds. When the U.S. froze Russia’s foreign reserves in 2022, many countries saw a warning. They began to reduce reliance on U.S. dollar assets and increase gold holdings.
Gold can be attractive here because it is a liquid asset. Liquid means it can be bought or sold in large amounts without crashing the price.
Phase 2: Pressure for more money creation
The second phase can begin if the Federal Reserve faces “impossible math.” The Fed may want lower interest rates while also wanting to shrink its balance sheet. But the government must refinance large amounts of debt. If markets cannot absorb that debt at affordable rates, the Fed may step in as a buyer.
This is often called money printing, even when it is described with softer terms. In simple terms, it means the central bank creates new dollars to buy financial assets, like government debt, to keep the system stable.
Phase 3: A bond market “death spiral” risk
The third phase is more severe and is not guaranteed. It is a scenario where high rates increase government interest costs, which forces more borrowing, which can push rates even higher. This feedback loop is sometimes called a death spiral. If a central bank buys more and more government debt to control rates, the currency can weaken over time.
Why oil and gold miners can matter
Oil price shocks have often been followed by stronger gold prices. Oil can push up costs across the economy, which can raise inflation fears. Some investors also watch gold mining companies. Miners can be leveraged to gold. Leveraged means profits can rise faster than the gold price if costs stay similar while gold sells for more.
For more context on Felix Prehn and the education approach behind Goat Academy, readers can see the background here: Felix Prehn Goat Academy.