Why Does Gold Rise With Inflation?
Author: Yanis, capital manager at Axone Capital
· 8 min read
Gold rises with inflation — everyone says so. But in 2022, inflation was at 9% and gold was falling. In 2024, Goldman Sachs targeted $2,700 and gold broke all its records. Here's the real mechanic.
The Analysis: A More Subtle Link Than It Appears
"Gold rises with inflation." You hear this everywhere — and it's true. But not for the reasons people think. Understanding the real link between gold and inflation means understanding something essential about the monetary system — and why Goldman Sachs was able to make a $2,700 per ounce prediction in 2024 that nobody wanted to believe.
Gold doesn't rise because prices increase. It rises because the value of the currency decreases — which is not exactly the same thing.
The key variable is real rates: the nominal interest rate minus inflation. When real rates are negative (for example, a benchmark rate of 1% against 5% inflation), holding cash makes you poorer. Your savings lose purchasing power every month. In this context, gold — which earns nothing but doesn't depreciate either — becomes the only neutral store of value.
Conversely, when real rates are positive, government bonds pay a return above inflation. Gold loses its comparative advantage: why hold an inert metal when your savings earn 2% real per year?
That's why between 2022 and mid-2023, gold stagnated despite 8-9% inflation in the United States: the Fed had raised rates so quickly that real rates had turned positive again. Inflation was high, but bonds were beating inflation. The classic logic worked perfectly.
Then Goldman Sachs Saw Something Everyone Else Was Missing
In April 2024, Goldman Sachs published an analysis that caused a sensation: the bank raised its gold price target to $2,700 per ounce (it was around $2,400 at the time). Their argument wasn't the Fed. It wasn't US inflation.
Since the freezing of $300 billion in Russian reserves in 2022 — an unprecedented decision in modern financial history — emerging central banks had drawn a brutal lesson: your dollar reserves can be confiscated if the United States decides to do so. Physical gold stored on your territory cannot.
Result: the central banks of China, India, Turkey, and a dozen other countries bought gold at record levels. In 2023, central bank purchases reached their highest point in 55 years. This geopolitical flow — structural, multi-decade — created baseline demand that positive real rates could no longer offset.
Goldman Sachs simply put a number on a trend that informed institutional investors had already spotted. Gold reached $2,700 at the end of 2024, then crossed $3,000 in 2025.
The Anecdote: The 1970s and the Stagflation Nobody Saw Coming
To measure gold's power during monetary crises, you have to go back to the 1970s. In 1971, Nixon ended the convertibility of the dollar into gold. Then came the oil shocks of 1973 and 1979.
What history rarely mentions: economists at the time didn't think inflation would last. They expected a quick correction. Institutions stayed in bonds. Individuals trusted their bank savings.
Between 1971 and 1980, gold went from $35 per ounce to $850 — a 24-fold increase in nine years. Cumulative US inflation over the period: about 130%. Gold didn't just cover inflation — it far surpassed it.
But here's what people always forget: those who bought gold in 1980, at the peak, waited 28 years to see their investment recover in real terms. Gold didn't return to $850 until 2008. Being right about the thesis isn't enough if you arrive at the wrong moment in the cycle.
The Historical Fact: Paul Volcker and the Death of the Gold Bull Cycle
In 1979, Jimmy Carter appointed Paul Volcker as Fed chairman with a simple mission: kill inflation, whatever the cost. Volcker raised rates to 20% in 1981. Real rates moved into strongly positive territory. The economy entered a severe recession.
And gold? It collapsed from $850 to $250 between 1980 and 2001. Twenty years of structural decline. Not because the world got better — but because confidence in the dollar and in the Fed's ability to control inflation had been restored.
The true Volcker lesson: gold falls when central banks are credible. It rises when they're not — or when states decide to freeze the assets of their adversaries.
Central bank credibility is the best "short" on gold.
The Concept: Gold as a Barometer, Not an Investment
The most common mistake: treating gold as a classic investment — something that generates income, with fundamentals to analyze and a P/E ratio to calculate. Gold is not an investment in the strict sense.
It's a confidence barometer in the global monetary system. Its price reflects the global level of distrust toward fiat currencies, the institutions managing them, and the geopolitical stability of the international financial system.
When this barometer rises sharply and quickly — as in 2020, in 2022–2024 — it doesn't say "buy gold." It says: something in the monetary system is under pressure. It's this macro signal, more than the metal itself, that is valuable for an informed investor.
At Axone Capital, we read this barometer as one indicator among others — alongside real rates, the dollar, and central bank flows. Not to trade gold continuously, but to calibrate the level of systemic risk at any given moment. The Macro · Technical · Mindset method means understanding what markets are saying — not just what they're displaying.