Is Gold Competing With Cash?

Gold often leads inflation, but when central banks signal higher interest rates, that advantage can disappear fast. In this IBKR Podcast episode, CME’s Erik Norland breaks down how rate expectations, dollar strength, and central bank credibility are turning gold into a direct competitor with cash.

Summary – IBKR Podcasts Ep. 374

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Elizaveta Gridneva

Welcome to our latest podcast. My name is Elizaveta Gridneva. Joining today to discuss precious metals, Erik Norland, who is a group economist for CME Group in Europe. How are you, Erik?

Erik Norland

I’m doing fine. How are you?

Elizaveta Gridneva

I am good. Gosh, how things are changing rapidly. We can’t know what tomorrow will bring. Maybe the headlines can shift at any moment, but let’s deep dive and I would like to pick up your thoughts today on uh, precious metals.

Erik, one of your recent articles, you opened by pointing out something that feels a counterintuitive geopolitical conflict that raises inflation risks, yet falling prices for gold and other precious metals.

What’s the key mechanism that explains why the classic safe heaven hasn’t played out this time? Or simply put, why haven’t precious metals behaved like traditional safe haven??

Erik Norland

So precious metals, what they do in the economy is very interesting. They tend to anticipate inflation before it happens. To give you an example, precious metals prices soared in 2019 and during the first half of 2020. But then when inflation actually struck after the pandemic, what happened was that central banks raise rates a great deal, which made holding currencies like the US dollar and the Euro, et cetera, more attractive than it would’ve been otherwise.

And therefore depressed, precious metals, prices. And so precious metals prices started this massive rally again in 2025 in gold, even earlier than that. But you know. Silver Platinum and Paladium in 2025. It kind of peaked out in January 2026. And then as the war began, precious metals prices initially fell a little bit further. And the reason for that is that we are seeing more and more central banks beginning to raise interest rates. So even before the war started, for example, the Reserve Bank of Australia started raising interest rates. After the war started, we started seeing the Bank of England and other central banks, even the ECV start considering the possibility of rate hikes.

Meanwhile, in the United States where the market still price at the Federal Reserve is likely to. Cut the price, fewer cuts than they had before. And so precious metals sort of anticipate inflation in advance, but then when inflation actually strikes, it’s not always good news because it can mean higher interest rates, which means it’s more attractive to hold government issued currency.

Elizaveta Gridneva

I understand. And if we talk about inflation expectations versus realized inflation, you described the t precious metals through early 2026, as you mentioned, as being driven largely by fear of inflation rather than inflation itself. Could you explain this by the rumor self effect dynamic and why realized infla tion can actually become a headwind for precious metals in the short term?

Erik Norland

Yeah. So, you know, precious metals are basically in competition with currency. They’re essentially a form of currency in a way, but they also have, of course, some industrial applications, especially for silver, platinum, and palladium. A little bit less so for gold. But they can all be seen in a way as a currency. But the thing is, these are currencies that pay zero interest. And so when central banks are lowering their interest rates, it makes holding precious metals relatively more attractive. But then when investors shift their psychology and stop expecting rate cuts and begin to expect rate increases, that’s usually.

Bearish for precious metals because some portion of those investors might decide, okay, well, you know, gold, silver, platinum, and playdium are now quite expensive, and now the interest rate on currencies is about to go higher. So maybe I’ll just keep my money in cash.

Elizaveta Gridneva

And also I would like to get more insights on Central Bank credibility and rate expectations. Topic. If I quote your article, you saying that a major turning point you highlight is the market’s reassessment of central bank independence, particularly around the Fed and how that shifted expectations for future policy. What do changing grade expectations matter more for precious metals than inflation headlines themselves?

Erik Norland

Yeah. You know, so for many decades, central banks were seen as being credible in the sense that they were keeping interest rates high in order to fight inflation. So during the 1980s and 1990s, for example, we had high interest rates and the price of gold came down very significantly. It dropped from 800 down to around $280 an ounce.

But then starting with the 2001 recession and especially the global financial crisis, we entered into a period of much lower interest rates and expanding fed balance sheets and expanding balance sheets at the ECB, the Bank of Japan, bank of England, et cetera. And all of that tended to be very bullish for precious metals. And then particularly during and after the pandemic, central banks created gigantic amounts of liquidity in order to fund budget deficits. And so I think that there’s been this growing fear that central banks are gradually losing their independence. They’re losing their interest in fighting inflation.

Even after the pandemic subsided and inflation rates came back down, they remained above central bank targets. Most central banks target 2% inflation. In the last few years, we’ve been running inflation closer to 3%, and despite that, central banks were cutting interest rates anyway. So there was this real concern that we might have somebody appointed to lead the Federal Reserve who was not gonna be independent. And he was gonna bow to political authorities but it doesn’t seem like that’s the case. You know, Kevin Warsh had taken a very independent line when he was on the Federal Reserve Board. Previously. He was an opponent of quantitative easing and he advocated for a tighter monetary policy. So when his appointment was announced, it kind of turned the tide against precious metals, at least in the short term. What happens longer term remains to be seen.

Elizaveta Gridneva

Great, thank you for this. This is very insightful to understand more what’s happening inside. Let’s now talk about the role of US dollar during geopolitical stress. So you emphasized that dollars role as a flight to quality asset after the conflict began.

How important has dollar strength been in pressuring precious metals, and how does that interact with the broader risk of move we have seen across portfolios?

Erik Norland

Yeah, so during the first few weeks of the conflict, the dollar rose versus most other currencies and all of the precious metals have a negative correlation to say the Bloomberg dollar Index, which is the broadest and most comprehensive measure of the US dollar. Yeah, so as the Bloomberg dollar Index rose in the first few weeks of the war precious metals, prices all fell. Back now in the last few weeks, that’s reversed again. The dollars started to weaken against not all the currencies, but against some of the currencies and precious metals are starting to show new life.

Elizaveta Gridneva

Understood. And looking ahead, you argue that many of the long-term supports for precious metals like persisted, budget deficits and above target core inflation are still intact. What signals would you watch for that might indicate that the market is starting to price renewed policy easing and the more durable rebound in precious metals?

So what would actually change the outlook?

Erik Norland

Different things could change the outlook in terms of making either a more bullish or more bearish case for precious metals. So one of the big tests right now is that a lot of the short term interest rate markets price higher interest rates in Australia, the United Kingdom the Eurozone. Now the question is, do the central banks actually follow through? Do they really raise interest rates into an oil crisis, into tight oil supplies and perhaps slower economic growth? If they. Don’t raise interest rates as the market’s price that could be bullish from for gold. You know, likewise, you know, there’s a question in the Federal Reserve, you know, do they cut interest rates more than what the forward curve suggests?

We don’t know what they’re gonna do, but if they do, that would probably be bullish for gold. When it comes to fiscal policy I don’t really see many changes coming at the moment. It looks to me like basically every major country is either keeping their budget deficit where it is, or they’re gonna expand it further. So the fiscal case for owning precious metals is still very strong.

Elizaveta Gridneva

Thank you Erik. That’s truly um, exciting journey and I really appreciate you bringing your expertise and deep knowledge on precious metals to our listeners today.

Erik Norland

Well, thank you for having me on.