Despite gold's ascent in recent years, it is down 15% since the American-Israeli war against Iran began on February 28.

What is going on? Firstly, compare inflation protected bonds (or real yields) to gold; both are protected against rising prices, but the bond offers interest payments, gold does not. When the coupon payments of those bonds rise, gold which pays nothing, becomes less appealing. And this is happening; the yield on 10 year American Treasuries has risen by 0.3 percentage points as a result of a riskier global environment.

Another reason is when gold rallies, as it has in the last few years, central banks (who typically hold large amounts of gold) can sell it to generate cash. On March 20th, Turkey sold $8billion worth of gold to prop up the lira. This pushes the price down.

One other explanation is that the past few weeks have shown that gold is not a complete universal hedge; it can’t protect against Gulf wars, or an energy shock, hence the fall. Instead gold protects against the debasement of money, per The Economist. Debasement is when the supply of money is increased, lowering the nominal value of each unit. This is done so governments can spend more without implementing taxes and impacting people’s finances. Debasement is a giant risk at the moment because of mounting public debts; but in the long term debasing leads to inflation, something gold supposedly protects against. However, when the meme traders outnumber the debasement traders and when institutional investors sell at a profit to cover losses on other assets, it doesn’t behave like a pure debasement hedge.

It seems there are many forces distorting the price of gold.