Gold was in the headlines on Monday. Still. It was still in the headlines.

Atahualpa’s downfall is runnin,’ dammit. Runnin’ to new record after new record. Monday’s high exceeded $2,350.

Consider this: Gold’s up almost 20% in just seven weeks. It’s up more than 12% since the beginning of March. This is a market, apparently, comprised entirely of Spanish conquistadors.

The figure above captures the gold rally alongside Monday’s other top market story: Pricing for Fed cuts in 2024 began the week slightly closer to 50bps than 75bps.

Bets on 2024 Fed easing receded steadily from mid-January. Markets have now removed almost five quarter-point cuts from the implied Fed funds trajectory for this year.

This week’s earliest price action comes ahead of a key inflation report which could very well shift the odds back in favor of 75bps. Or if it comes in warm (the CPI release), it could prompt traders to price out the remaining rate-cut premium in excess of 50bps (around 11bps as of early Monday). As the figure below shows, we’re basically equidistant ahead of Wednesday’s inflation data, with a slight lean towards 50bps.

As discussed at length in the latest Weekly, if the US macro data continues to hold up and the disinflation trajectory continues to drift sideways, June’s probably out for a Fed cut. And it’s possible that month’s dot plot refresh could reflect as few as one reduction for this year.

So what’s going on with gold? Here’s an inverse real yields play that’s rallying inexorably against a fairly dramatic hawkish repricing in STIRs. That doesn’t seem to add up.

Geopolitical tension only makes sense as an explanation if you’re trying to posit something about official gold buying for reserves — so, some kind of accelerated shift associated with growing concerns around the safety of G-7 financial claims among countries engaged in activities with the potential to trigger Treasury sanctions. But that’s unsatisfying. Central bank gold-buying isn’t a new phenomenon. And it’s a bit hard to imagine a pick up in that buying sufficient to drive prices this far, this fast.

Tension in the Middle East is likewise unsatisfying and equally insufficient to explain a 20% gold rally in the space of less than two months. Middle East tension is a “time immemorial” sort of thing. Maybe it’s “worse” now than some unconditional, mean level of bloodlust, but that’s pretty nebulous as an explanation for an acute, out-of-the-blue gold rally.

As a reminder, gold ETFs actually haven’t seen large inflows. In fact, the trend there is decidedly “bearish” (that’s not exactly the right word, but you get the idea).

The figure above, from JPMorgan’s Nikolaos Panigirtzoglou, gives you a sense of the trends in “paper gold” (so to speak), central bank buying and what I’ll indelicately call “hoarding” by individuals who’ve apparently taken to calling themselves “stackers” in Reddit forums now.

Long story short, none of the flow trends are new. Last month, Panigirtzoglou described the appeal of physical gold. “Privacy and tangibility have become a more important consideration for private investors since the pandemic and physical gold ETFs have a disadvantage in this respect [because] ETF transactions are recorded and their holdings are registered, thus lacking privacy and anonymity,” he wrote, adding that,

In a hypothetical catastrophe scenario for which investors are trying to hedge by buying gold, holding a paper certificate of gold ownership via an ETF, subjected to counterparty risk, looks less attractive and less safe than tangible gold stored privately. Indeed, at the same time as selling gold ETFs, private investors and individuals have been buying bars and coins in a rather strong and steady manner since the pandemic. And at $230 billion cumulatively since Q3 2020 these bar and coin purchases have more than outweighed gold ETF sales and have even outpaced gold purchases by central banks.

I cited that color last month, by the way, but Monday seemed an opportune time to highlight it again.

As discussed here last week, some strategists think gold’s reflecting concerns around a kind of “checkmate” moment for US government finances, wherein the Fed will eventually be compelled to institute QE (or buy T-bills) to cap Treasury’s debt servicing costs and thereby underwrite fiscal largesse at a moment in American history when both parties’ presidential candidates are populists. (One’s a “socialist” and one’s a “fascist,” to adopt the shrill tone of what we’re calling “discourse” these days. Either way, it’s fiscal profligacy).

If there’s a fundamental story in play with gold, my guess would be that some investors simply believe the Fed’s prepared to cut rates into an above-trend growth rate and that Jerome Powell has already accepted a higher inflation target over the near-, and maybe even over the medium-, term. Powell has, after all, repeatedly used the phrase “over time” to describe the restoration of price stability at 2%.

It’s also possible, I suppose, that everyone’s suddenly convinced that a hard landing’s inevitable despite robust data. The idea there might be that the Fed’s getting fooled into holding terminal longer than they should and that the bottom’s going to fall out one day.

Other, more innocuous explanations for gold’s run-up are feasible. As Bloomberg noted, it might just be trend-followers or “an army of algorithmic traders drawn to gold simply because it’s going up,” as an article published on April 7 put it. Or it could be a kind of slow-burning gamma squeeze, but “slow-burning” isn’t an adjective that plays well with “gamma squeeze” — that dynamic typically manifests in truly explosive upside moves.

Who knows. Maybe it’s just man’s long-running fascination with sun-colored, shiny objects. As Cortés told the Aztecs, “I and my men suffer from a disease of the heart which is only cured by gold.”