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During the "Second Oil Crisis" (1979–1980), which was triggered by the Iranian Revolution and intensified by the Iran-Iraq War, the price of gold didn't just rise—it went parabolic.

Gold became the ultimate "safe haven" for investors panicking over skyrocketing oil prices, double-digit inflation, and the Cold War climate.

The Massive Price Spike (1979–1980)

At the start of 1979, gold was trading at roughly $226 per ounce. By January 1980, it hit an all-time record of $850 per ounce. That is a nearly 280% increase in just one year.

THE MARKET MIGHT BE SKITTISH NOW, BUT LIKE TO BET WHICH THE PRICE OF GOLD IS GOING TO GO .... TRUST IN THE USD$ MUST GO DOWN WITH THE PERFORMANCE OF TRUMP. HIS MILTARY IDIOCY IS COST $1B A DAY, HE HAS $15B TO PAY BACK BASE DON THIS TARIFF NONSENSE ...

AND FOR THE LAST LAUGH (how do you think trump reacts to these jokes)

https://www.youtube.com/watch?v=9ns3UP2gGB8

GOOD PUNTING

THE GNOME

PART 3 ... 3. The Shift: Western Bullion vs. Eastern Premiums

Eichengreen’s analysis of the dollar's resilience aligns with the market trends you can monitor at the Shanghai Gold Exchange (SGE):

The Triffin Dilemma: The world needs more dollars for trade, but the more dollars the U.S. prints, the less "safe" they become. This creates a structural drive toward alternatives.

Physical Migration: As the "Exorbitant Privilege" erodes, you see a move away from "paper" gold (leveraged derivatives on the COMEX) toward physical bullion in the East. China’s push to internationalize the Renminbi and its integration with gold markets is a direct attempt to break the dollar's "toll booth" on global trade.

4. Why the Dollar Doesn't Just Collapse

Eichengreen argues that the dollar survives primarily through Network Effects and Inertia.

The "Incumbency Advantage": It is hard to switch because everyone else is already using it. Even as the dollar's share of global reserves declines (from over 70% in 2000 to roughly 58% today), no other currency yet offers the same level of liquidity and deep bond markets.

Multipolar Future: He predicts a gradual shift to a system where the Dollar, the Euro, and the Renminbi coexist, rather than a single sudden collapse.

This "Exorbitant Privilege" explains the leveraged derivatives I track. The U.S. can only sustain the massive gap between "paper" gold and physical inventory as long as the dollar remains the undisputed reserve currency. Once that "privilege" fades, the market will likely undergo a "violent" re-pricing back toward physical commodities and transparent exchange premiums.

There are other authors who explain this as well or better.

Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System Reprint Edition

by Barry Eichengreen

In the modern era, energy abundance and technological enhancements have broadly improved human well-being, but the global monetary system has been slow to keep up. There are over 160 active currencies in the world, each with a local monopoly over its own country, and with little or no acceptance elsewhere. Many of them are rapidly diluted, which continually devalues the savings and the wages of the billions of people who live and work within those jurisdictions. Being born in the "wrong" country makes saving money far harder than it needs to be.

https://www.goodreads.com/book/show/197566578-broken-money

PART 2 .... Just as everyone uses the same social media platform because "everyone else is there," banks and countries use the dollar because everyone else accepts it.

To replace the dollar, an alternative must offer Liquidity (the ability to buy/sell billions in seconds) and Rule of Law (the certainty that assets won't be seized or manipulated by a single government).

Connection to our Interests

Eichengreen’s "Exorbitant Privilege" provides the macro-economic "why" behind the specific market behaviors we track:

COMEX Manipulations: The "deceit" Eichengreen describes allows for the massive expansion of leveraged derivatives. If the dollar weren't the reserve currency, the U.S. could not sustain the paper-to-physical gold ratios currently seen on the COMEX.

Warehouse Inventory Reports: As the "Exorbitant Privilege" erodes, you see a shift in physical bullion moving from West (NY/London) to East (Shanghai). This is a physical manifestation of the decline of dollar hegemony that Eichengreen predicts.

The "imperial" nature of the dollar—and the hidden mechanisms that keep it afloat—is particularly revealing.

1. The Core "Deceit": Seigniorage and the Double Loan

The "exorbitant privilege" (a term Eichengreen traces back to the 1960s) refers to the unique ability of the U.S. to pay for its imports and debts by simply printing its own currency.

The "Interest-Free Loan": Other nations must produce physical goods (like coffee or gold) to earn dollars. The U.S. only needs to produce paper or digital entries. This creates an "interest-free loan" from the rest of the world to the American taxpayer.

The "Locked-in" System: Because central banks hold their reserves in dollars, they are forced to reinvest those dollars back into U.S. Treasury bonds. This "petrodollar recycling" ensures that the U.S. can run massive deficits without the usual penalty of high interest rates or currency collapse.

2. The Petrodollar and the Military-Industrial Complex

Eichengreen and subsequent analysts highlight a "security-for-dollars" pact that underpins the system:

The 1974 Saudi Pact: After the gold standard collapsed in 1971, the U.S. reached a strategic agreement with Saudi Arabia. Oil would be priced exclusively in dollars, and in return, the U.S. provided military protection and advanced weaponry.

Funding the Empire: The "privilege" allows the U.S. to maintain a global military footprint that would be financially impossible for any other nation. By borrowing cheaply in its own currency, the U.S. can finance its military-industrial complex without triggering a domestic fiscal crisis.

The "Weaponization" of the Dollar: Eichengreen discusses how the U.S. uses its control over the dollar (and systems like SWIFT) as a geopolitical weapon. If a country attempts to bypass the dollar—as seen in the "Petrodollar War Theory" regarding Iraq or Libya—the U.S. can effectively "excommunicate" them from the global economy.

PART 1

1. The Meaning of "Exorbitant Privilege"

The "privilege" refers to the fact that the U.S. can run massive trade deficits and borrow money at lower interest rates than any other nation.

The "Deceit": Because the dollar is the global reserve currency, the U.S. can essentially print money to pay for foreign goods. Other countries must produce physical goods or services to earn dollars, but the U.S. only needs to issue Treasury bonds.

Seigniorage: The U.S. earns a massive profit simply by issuing currency that the rest of the world is forced to hold for trade and reserves.

2. The Rise: From Bretton Woods to Global Hegemony

Eichengreen details how the dollar replaced the British Pound.

The Bretton Woods Agreement (1944): This established the dollar as the anchor of the world economy, backed by gold at $35 an ounce.

The 1971 Pivot: When Nixon "closed the gold window," the dollar's value was no longer linked to physical bullion. Eichengreen argues that despite fears of a collapse, the dollar’s dominance actually increased because there were no viable alternatives with the same level of liquidity and deep financial markets.

3. The "Fall" and the Triffin Dilemma

The book addresses the "Triffin Dilemma," which is a fundamental flaw in the international monetary system:

To provide the world with enough liquidity for global trade, the U.S. must run trade deficits (sending more dollars out than it takes in).

However, these constant deficits eventually undermine the value of the dollar, leading to a loss of confidence.

The Modern Crisis: Eichengreen examines the 2008 financial crisis as a turning point where the world began to realize that the "safe asset" (U.S. Treasuries) might not be as safe as once thought.

4. The Future: A Multipolar System

Unlike some doomsday authors, Eichengreen does not predict a sudden, overnight "death of the dollar." Instead, he argues for a gradual shift toward a multipolar system:

The Euro: Though hampered by political fragmentation, it remains the only other currency with a comparable economic base.

The Renminbi (RMB): He analyzes China's efforts to internationalize the Yuan. Given your interest in the Shanghai Gold Exchange, this is a critical point—China is actively trying to create a gold-backed or commodity-linked alternative to bypass the "exorbitant privilege" of the dollar.

The Return of Gold? While Eichengreen is a mainstream economist, he acknowledges the psychological and technical role gold plays during periods of currency transition, particularly as central banks in emerging markets diversify away from the dollar.

5. Why the Dollar Persists (For Now)

Eichengreen explains that the dollar survives not because it is "good," but because of Network Effects:

Just as everyone uses the same social media platform because "everyone else is there," banks and countries use the dollar because everyone else accepts it.

When energy spikes, leveraged speculators who are long gold will sometimes take profits on gold to fund margin calls or new energy positions, temporarily depressing gold even as the geopolitical backdrop should theoretically support it. Then, as energy trades cool, money flows back.

This pattern has historical precedent — the speculative spike in energy that lifted oil to almost $150 a barrel in 2008 contributed to an economic slowdown and caused dramatic cross-commodity volatility, with gold caught in the crossfire.

Gold's own success created volatility: the bigger the rally, the more profit-taking happens on any piece of bad news.

Gold is intensely sensitive to interest rate expectations — higher rates make non-yielding gold less attractive, and traders react to every data release. So the good news a month ago was the high employment figures...and u can guess where they are going with AI

Gold is often described as "overbought" but almost never "over-owned" — institutional positioning still has room to expand, suggesting the rally is running on structural demand, not excessive speculation.This is the stabilizing force: every time short-term speculators dump gold to chase energy or equities, central banks and long-horizon institutions quietly absorb it

Investment demand for gold skyrocketed from 205 to 551 tonnes in the first half of 2025, while jewellery demand fell — meaning gold is increasingly being bought as a financial instrument, not an ornament. Central banks purchased 365 tonnes in Q4 2024, though they pulled back to 166 tonnes by Q2 2025 — uneven, but the long-term direction is up.

The volatility is essentially a tug of war between fast money (hedge funds, futures traders rotating between energy, equities and gold based on the news of the day) and slow money (central banks, sovereign wealth funds, and institutional investors who treat every dip as a buying opportunity). The fast money creates the swings; the slow money sets the floor.

good luck investors

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