GOLD: A FRAMEWORK FOR UNDERSTANDING SHORT AND LONG TERM PRICE MOVEMENTS

23 March 2026

1. Framework

This framework aims to simplify a complex market and support better allocation and positioning decisions.

So far, we have made the distinction between financial and physical assets, and we have seen that gold falls on tightening, rises on easing, and trends on debt. Now, we will develop a framework, not for predicting gold , but about understanding what is driving price and so we will be able to position accordingly.

As I write, investors find themselves in the middle of a hot war in the Middle East, with oil prices touching their highest levels in years. Yet despite all this economic and geopolitical chaos, gold and silver prices seemingly can’t stop sliding. In the past, in times of geopolitical stress, gold appreciated as investors sought refuge in the yellow metal, but not this time. At the time of writing :

• The DXY 52-week low and high: 95.55 and 104.68, currently 99.84

• The yield on the US 10-year Treasury has risen to 4.42%

How to interpret this? 

What we now need to simplify a complex market is a usable framework. Its purpose will be not to predict every price move, but to understand why gold is moving and how to respond:

• Distinguish short-term noise from long-term direction
• Identify what is driving price at any given moment

For example, in 2022 rising real yields pushed gold lower despite strong long-term support from debt expansion. Or at this moment, where the hike in oil prices is creating a fear of long-term inflation and thus of rising yields, which together with a flight to safety is strengthening the dollar at the expense of gold. 

Our goal is more about clarity than precision. This framework is not designed to time trades, but to guide how much capital to allocate as conditions change.

What This Means In Practice

Gold will often fall for reasons that have nothing to do with its long-term value. Short-term weakness is not necessarily a change in trend. The key decision is allocation of capital, not prediction of price. 

 a framework for understanding gold 

Tightening – a phase where financial conditions become more restrictive, typically through higher interest rates, reduced liquidity, or a stronger currency, making borrowing more expensive and putting downward pressure on asset prices

Easing – a phase where financial conditions become more supportive, typically through lower interest rates, increased liquidity, or a weaker currency, making borrowing cheaper and supporting asset prices

NPV (net present value) – the value today of future cash flows, calculated by discounting them using an interest rate; when interest rates rise, future cash flows are discounted more heavily, reducing their present value and therefore lowering asset prices. 

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2. The Mechanism Behind Gold

Gold is driven by three interacting layers:

• Macro pressure - monetary conditions, the interest rate and currency environment
• Market structure - the “machine”, the mechanics over the market, positioning in asset classes and flows of funding liquidity 
• Structural trend - debt expansion and liquidity growth manifest in long-term momentum 

Each operating on different time horizons.

Short-term moves come from macro pressure and market structure.
Long-term direction comes from structural forces.

Understanding how these layers interact is the key to making sense of price behaviour.

What appears random is usually the result of these forces pulling in different directions at the same time.

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3. How The Layers Interact In Practice

In the short term:

• Rising yields and a stronger dollar can push gold lower
• Positioning and liquidity can amplify the move

At the same time:

• Structural forces such as debt expansion and liquidity growth continue along in the background

This creates a tension between short-term declines within a longer-term trend. 

That tension is where most of the confusion arises - people simply cannot understand why gold is collapsing despite our being in a high debt and - in theory at least - rate cutting environment and one where there is declining confidence in the dollar.

Glossary

Positioning – the extent and direction of investors’ exposure to an asset, weightingp in the portfolio, which determines how they are likely to react to price changes. Positioning becomes risky when it is crowded / one-sided or leveraged / geared up with debt 

Liquidity – the availability of funding and how easy it is to trade in a market, determining how easily assets can be bought or sold without significantly moving the price

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4. A better decisional

But once the mechanism is understood, the focus shifts:

• Away from trying to predict every move
• Towards interpreting what is happening and hopefully sticking to the trend... until or unless it turns 

This leads to better decisions:

• Not so much “when do I buy gold?”
• But “how much should I hold relative to other assets?”

In other words, allocation and positioning (weighting) become the priority... Whether to buy or sell and if so how much. 

Macro pressure – influence of interest rates, inflation, and currency movements on asset prices

Market structure – the underlying mechanics of how a market operates, the “machine” as described by Ray Dalio, including who the participants are, how they are positioned, and how trading flows and liquidity affect price movements

Structural trend – the long-term direction of an asset driven by fundamental forces such as debt expansion, availability of liquidity, and changes in confidence in the financial system

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References

DXY

U.S. 10 Year Treasury Note