Voima Weekly #32 – Gold's Weakest Week in Decades. What Changed?

Berenice Abbot - Pawn Shop 48 3rd Avenue, Manhattan 1937¹.

Gold and silver experienced one of their weakest periods in over 40 years last week. You have to go back to the early 1980s to find a comparable move.

This raises a natural question: has anything changed? The short answer is: no.

When markets tighten quickly, two things tend to happen at the same time. Safe haven demand increases - and the need for liquidity increases. And in those moments, what gets sold is what can be sold. Gold belongs to that category. Not because its role has weakened, but because it is one of the few assets that can be turned into cash immediately. In a crisis, markets do not sell the weakest assets. They sell the most liquid ones.

The rise in gold over the past years has been significant. The first phase was driven by central banks, particularly after 2022, when geopolitical risk took on a new form. After that, a broader set of participants entered the market; hedge funds, systematic strategies, and retail investors.

These are not the same. Structural demand builds the trend. Tactical capital amplifies it. And often, unwinds it. Fast money comes in last and leaves first.

At the same time, developments at the macro level have had a direct impact on liquidity. Oil is priced and sold globally primarily in dollars. When oil prices rise or availability becomes uncertain, importing countries need to secure more dollars to ensure their energy supply. This is not only about current demand, but also about preparation. If markets begin to expect prolonged disruption, dollars are often accumulated in advance. These dollars must either come from existing foreign exchange reserves or be purchased in the market.

In both cases, liquidity tightens. In such an environment, the capacity to accumulate other reserves, such as gold, declines. And in some cases, the most liquid assets are also monetized.

In such an environment, gold is not necessarily accumulated; it is also used. The same dynamic is visible at the household level. When costs rise and the economy slows, gold becomes a source of liquidity². It is not only a hedge against uncertainty but is an asset that is used when uncertainty materializes.

It is worth noting that a similar move was last seen in the early 1980s. At the time, it did not mark the end of the trend, but a sharp correction within a longer cycle. Markets do not move in a straight line. They build advances and declines in phases, often precisely when a single move appears to break the narrative. For that reason, a single week rarely defines direction. It says more about market structure and where we are in the cycle.

What has not changed is what matters. Government debt continues to rise. The money supply continues to expand. Central banks have been net buyers for years and uncertainty has not disappeared from the system. None of the factors that drove gold to these levels have gone away.

What has changed is the short-term structure of the market. Momentum has unwound. Liquidity has been needed. And some buyers have stepped aside temporarily. This is reflected in the price. In moments like these, the market measures liquidity, not value. That is why they are often the moments when long-term positions are built.

Gold is not there to “perform.” Its role is to endure and to preserve purchasing power over time. Most savers and investors expect that things will ultimately be fine. So do I.

But it is important to recognize that the current monetary system is built on the expansion of debt. Without meaningful changes, this effectively means that the purchasing power of currencies declines over time. Gold does not solve this but it reflects it³. Its value is not determined by what happens over individual weeks, but by the fact that money in the system continues to expand. And when money increases, its value relative to scarce assets declines.

A rapid rise in interest rates is unlikely to be a permanent state. The current system is built on debt, and debt cannot withstand indefinitely higher interest rates. At some point, financial conditions tighten too much, and that is when central banks typically step in. In practice, this means adding liquidity to the system so that debt remains manageable- not so that it is reduced.

Short-term narratives change constantly. Gold’s role does not. It has preserved purchasing power for thousands of years - and that is not changing.

– Marko Viinikka
Founder, CEO
Voima Gold Oy

Disclaimer: Voima Weeklies are the personal writings of the undersigned. They do not necessarily represent the official view of Voima Gold Oy or any other company, nor do they constitute investment advice or a recommendation to purchase securities.