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Today, gold and silver began to decline, with silver still showing unhealthy trends and gold experiencing fluctuations. First, let's take a look at the report from the U.S. Commodity Futures Trading Commission (CFTC): As of the week ending October 8th, speculative net long positions in COMEX gold futures decreased by 22,678 contracts to 226,283 contracts, while speculative net long positions in COMEX silver futures decreased by 3,635 contracts to 34,744 contracts. Pressure points continue to suppress the market, but the deterioration of geopolitical tensions between North and South Korea may further drive up the prices of gold and silver; we will wait and see.

Additional debunking information: When discussing U.S. debt and gold demand, many people believe there is a direct link between the two: increasing debt equals rising gold prices. However, the reality is much more complex. While rising debt may trigger inflation fears and weaken the dollar, evidence suggests that it is not debt itself that drives gold demand, but rather monetary policy, especially changes in interest rates and inflation management, which play a more significant role. So, why is the widely circulated view that debt is the reason for rising gold prices? This misconception has misled investors for years, and we often hear that gold prices should follow suit when debt increases.

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This narrative has been reinforced by media commentators over the years, becoming a catch-all statement. Just this year, we have seen several articles with titles like "Fear of government spending may sustain the gold bull market" and "Rising gold prices are signaling a warning about U.S. debt." Such narratives have pushed the idea that as long as debt continues to climb, gold prices should also rise.

It is not hard to imagine that some people might be persuaded to invest in gold because of this, especially when there is no sign of slowing U.S. government spending. But it's a bit like the old rule of drinking eight glasses of water a day; it sounds reasonable and seems like good advice, but it ignores other factors such as a person's size, environment, and activity level.

Similarly, the performance of gold does not follow a simple formula tied to debt. The assumption that an increase in debt equals a rise in gold prices may be harmful. Although in certain periods, such as from 1999 to 2009, debt and gold prices have risen together, long-term data tells a different story. Debt has been steadily rising for decades, but gold prices do not always move in tandem.

The total historical debt has hardly stopped increasing over the decades, but gold prices fell from their historical highs in 2013 and have been hovering between $1,000 and $1,300 per ounce until 2020, while U.S. debt has never stopped growing. There is indeed some connection between debt and gold, but this connection is fragile and not as direct as some people think. The most interesting correlation lies in the psychological aspect. Exploring this psychological factor can indeed provide some answers.

People often link U.S. debt and gold prices because they have had a certain historical association, and people believe both are related to economic stability. When debt rises, people have an emotional response, worrying about inflation, devaluation of the dollar, or even government default, which drives people to see gold as a safe haven. Gold is often seen as real money, a tangible asset with intrinsic value, while debt and fiat currency may feel less secure, especially when the government is heavily in debt. This psychological connection can be traced back to periods of economic crisis when gold performed well, thereby reinforcing the belief that high debt will automatically push up gold prices. This belief is rooted in past crises, such as the 2008 financial crisis, and it still influences investor behavior to this day. Whenever there are headlines about increasing debt or political instability, fear-driven demand for gold surges, regardless of whether the data supports such behavior.

But the data shows that gold reacts much more strongly to monetary policy than to fiscal policy, which actually provides evidence that gold is a currency. Monetary policy and fiscal policy are often confused, but they are very different. Simply put, monetary policy is managed by central banks to control interest rates and the money supply, while fiscal policy is about government spending and taxation. There is some interaction between the two, but they are different. High U.S. debt is the result of fiscal policy, while high interest rates are the result of the Federal Reserve's monetary policy.

Gold performs well when real interest rates are low. When people cannot earn much from interest, they turn to gold as a safer way to store wealth. Gold is more attractive when real interest rates are low; its appeal diminishes when real interest rates are high. Just last September, the Federal Reserve unexpectedly cut interest rates by 50 basis points, while most analysts believed that a 25 basis point cut was the most likely outcome.Gold responded positively to this, breaking through $2,600 per ounce and setting a new historical high. Part of the reason is that this unexpected "massive" interest rate cut has stimulated demand for gold, driving up the price of this precious metal. However, the market was also inspired by the Fed's predictions for 2025. Most board members predicted that by the end of next year, the federal funds rate will drop by 200 basis points, which surprised and delighted the market.

All markets are forward-looking, so this news further stimulated demand for assets that benefit from a low-interest-rate environment. This indicates that gold reacts very quickly to changes in monetary policy, not to the level of debt, but to the economic signals sent by the Fed. This reminds us that when predicting gold prices, it is often more important to pay attention to the Fed than to focus on Treasury bonds. Therefore, although U.S. debt is a hot topic, it is monetary policy that truly drives fluctuations in gold prices. Understanding this, you can make wiser decisions and see through those fear-based narratives.

The psychological connection between debt and gold is strong, but we should go beyond the headlines and focus on the real drivers. Knowing when to buy gold is not about reacting to every debt report, but understanding how monetary policy will shape the future economy. If gold is already on your radar, make sure you are paying attention to the Fed, not just the debt reports.