What is gold trying to tell us? A year ago, the value of a dollar, measured in gold, began to climb. Then, as America went to the polls in November 2022, the dollar began to collapse. Was it the Democratic grasp on the Senate? The thinness of the GOP’s House majority? Did gold have an advance sense of the banking crisis? In any event, the dollar is within a hair of its record low of a 2074th of an ounce of gold that it hit in August 2020.

The Sun is among those who view the monetary metal as a kind of leading economic indicator. For evidence of that, consider how the dollar’s nadir served as an early warning sign of the price inflation that yet grips the economy. Throughout 2021, as prices soared, economic sages waved away the growing evidence of runaway price increases as merely “transitory.” Inflation only began to be taken seriously by the Fed and Treasury early in 2022. 

Last summer, in the leadup to the midterms, we were struck by the divergence between gold and price inflation. Between March and July, the dollar’s value soared to a 1,726th of a gold ounce, an 18 percent increase. It was particularly impressive considering the rocketing pace of inflation at the time — 9.1 percent over the prior year. In retrospect, perhaps gold had expectations that a GOP Congress might help restore monetary and fiscal sanity.

With those hopes dashed, the dollar has been hovering at around a 2,000th of a gold ounce in recent months. This piqued the interest of the Times’ economic sage, Paul Krugman, who deemed it an “interesting story” that, in contrast with tech stocks or Bitcoin, “gold has hung in there, with its current price just a few percentage points off its 2020 peak.” He even saw it as possible “that investors are buying gold because they fear inflation.”

Mr. Krugman quickly dismissed that notion, instead calling gold a “pet rock” cherished by “financial barbarians” who see it as  “as a store of value” despite its lack of “any monetary purpose.” By contrast we pointed out that gold has an important purpose indeed – it is the money. All the more reason to examine what signal gold is sending as the dollar descends, again, toward a record low. 

To grasp the scale of the dollar’s fall, monetary historian Edwin Vieira, Jr. tells us that when Congress created the Fed, the greenback, buttressed by the Gold Standard Act of 1900, stood at a 20.67th of a gold ounce. The decline since then, Mr. Vieira says, shows that “the politicians and bankers” were “unable to keep the promise their forebears made in 1913” that the Federal Reserve “would provide ‘scientific’ management of currency and credit.”

The central bank’s purpose, Mr. Vieira reminds, was nothing short of “ending inflation and deflation, and issuing in a new era of perpetual monetary stability.” This goal was abandoned when FDR, 90 years ago today, barred Americans from owning gold.  The Fed’s failure to forge stability precipitated the dollar’s tumble, and gold’s “safe-haven qualities have shined through again during the latest market turbulence,” UBS Group observes.

This “skyrocketing uncertainty” is driving the dollar’s fall against gold, an economist at the American Institute for Economic Research, Peter Earle, tells us. He points to influences like OPEC’s drive to boost oil prices, the “brutal slog” of the war in Ukraine, and the turmoil in the American banking sector as drivers for the dollar’s drop. “It would be much more surprising if gold were not rising, than that it is,” Mr. Earle concludes.

Witness, too, the drive among America’s geopolitical foes to develop alternatives to the dollar as the world’s reserve currency. Are they catching on to the fact that, since 1971, the greenback, severed from its tie to gold, is merely irredeemable electronic paper ticket money? If so, it’s no wonder that countries like China are putting forward their own fiat currencies as an alternative. In that sense, gold is flashing a warning sign of trouble ahead.