Dear Reader,

Gold – the supposed “safe haven” asset – has fallen nearly 20% this month, even as the war in the Middle East escalates.

In fact, last week was gold’s worst weekly loss since 1983…

‍

And gold ETFs are seeing their largest outflows in over a decade.

This wasn’t supposed to happen – or so the conventional thinking goes.

Most people assume gold moves on one variable.

War up – gold up. Fear up – gold up.

But markets don’t work that way.

The same geopolitical shock that seems like it should help gold…can also create the exact conditions that hurt it in the short term.

Here’s what’s really going on.

Inflation, Rates, and Liquidity

Oil prices have been surging.

And because oil is an input for so many parts of the economy, this is fueling inflation fears – which means traders betting on lower odds of rate cuts.

Now I still think rate cuts are still very much on the table (I explain why in the video below).

​

But the point is, regardless of my personal opinion…

The current consensus is for zero rate cuts this year.

And that’s a problem for gold – at least in the short term.

You see, as an asset, gold doesn’t pay interest.

So when markets start pricing in fewer rate cuts, higher yields, or even the risk of tighter policy, gold becomes less attractive relative to cash and other yield-bearing assets.

Note: While there are products out there that allow you to earn a yield on gold – such as Monetary Metals – they are a tiny slice of the overall market.

In other words, the war itself may be bullish for fear…

But the oil shock coming out of that war is bearish for rate-cut expectations.

That’s the inflation and rates angle.

There’s also the liquidity angle.

In volatile markets, investors often sell what they can sell – not just what they want to sell.

And gold is one of the most liquid assets in the world.

So when traders need cash, when portfolios are under stress, or when margin calls start hitting elsewhere, gold often gets sold simply because it can be sold quickly.

Even accounting for the current drop, gold is still up nearly 50% from a year ago…

Meaning plenty of investors are still sitting on gains – making gold one of the easiest sources of liquidity when markets get stressed.

We’re likely seeing both angles at work here – and it explains why gold has been selling off.

However…

None of That Changes the Bigger Picture

The long-term case for gold was never really about “war equals higher gold.”

The real long-term case is about unsustainable debt, monetary debasement, and an increasingly fragmented world.

Those forces have not gone away. If anything, they’re getting stronger.

That means, while the short-term reasons gold is falling are cyclical – the long-term reasons to own it are structural.

Once you understand that, the more important question is no longer just whether you should own gold…

It’s how you should own it.

A lot of people think “gold is gold.”

It isn’t.

There’s a huge difference between owning something that gives you price exposure to gold…

And owning gold in a way that actually protects you if the system itself gets stressed.

Those are not the same thing.

Broadly speaking, there are three ways to own gold.

Method #1: Physical Gold in Your Possession

Coins. Bars. A safe in your house. Buried in the backyard. Hidden in the walls. Whatever.

The obvious advantage is that there is no counterparty risk. Nobody is standing between you and your gold.

If you have it, you have it.

And if things ever get ugly enough that access becomes the whole point, possession matters.

But physical possession also has real downsides.

You can lose it. It can be stolen. If the wrong person knows you have it, that creates a different kind of risk altogether.

Plus, it’s expensive to move in and out of. You pay a premium when you buy physical metal, and you take a haircut when you sell it.

So it’s not an especially efficient vehicle for short-term trading.

P.S. If you’re looking for a trusted dealer that can ship gold coins and bullions straight to your home, consider Miles Franklin (this is an affiliate link and it helps support me at no cost to you).

Method #2: ETFs or Other Paper Vehicles

Think buying shares in GLD, the SPDR Gold Trust.

This is the easiest option by far.

It’s liquid. It’s cheap. It’s convenient. It sits in a brokerage account. It’s easy to buy, easy to sell, easy to report.

And if your goal is simply to get exposure to the price of gold, that may be perfectly fine.

But this is where people confuse price exposure with ownership.

In normal times, that distinction may not matter much.

In a real crisis, it matters a lot.

Because if your ownership depends on a chain of brokers, custodians, counterparties, and paper claims, then your relationship to the underlying metal is very different from someone who actually possesses it or has direct title to allocated bars in a vault.

That doesn’t mean that paper gold is useless.

It just means you need to be clear about why you own gold in the first place.

If your goal is to trade trends or hedge your portfolio, paper gold is usually more than enough.

If your goal is protection against true systemic stress, counterparty risk matters a lot more than most people realize.

As an aside, the huge amount of paper gold is also a big driver of gold’s short-term volatility.

That’s because a lot of “gold ownership” is really paper claims, futures positions, and hedges – not people taking delivery of bars and coins.

Normally that’s fine. Most of those claims are never meant to settle in physical gold anyway.

But when gold moves sharply, especially higher, the paper side of the market can start creating its own turbulence.

Hedgers suddenly need to post more collateral. Some are forced to close positions. Others have to sell metal or raise cash elsewhere to meet margin requirements.

So you get waves of forced buying and forced selling that have less to do with gold’s long-term fundamentals and more to do with the plumbing of a highly financialized market.

Method #3: Vaulted Gold

Done right, this can be a good middle ground.

It’s safer and more efficient than storing everything yourself.

And it’s still more directly tied to actual metal than an ETF.

But “done right” is the key phrase there.

Not all vaulted gold is created equal.

If you’re going to store gold in a vault, you want it allocated.

This means there is actual physical gold in the vault specifically set aside to match your ownership – not just a general promise that the vault operator owes you gold.

Ideally, you want it segregated too – meaning your specific bars or coins are physically separated and identified as yours, rather than simply being part of a larger pooled holding.

You also want it insured, independently audited, and stored in a jurisdiction with strong property rights, a strong rule of law, and as little confiscation risk as possible.

(By the way, this immediately excludes the U.S. and the UK – both of which have a storied history of confiscating gold).