Gold’s 1980 crash had a weapon today’s governments may struggle to use: 20% interest rates.

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For those under the illusion that the current gold market is a repeat of the 1980s, understand what actually ended that bull market.

The Fed under Paul Volcker raised interest rates to nearly 20% to crush inflation and restore confidence in the dollar.

Now imagine raising interest rates anywhere close to those levels today.

Governments would face an unprecedented debt-servicing crisis, businesses would collapse under borrowing costs, and households would be pushed into widespread defaults.

The debt burden today is nowhere near what it was in the 1980s. The entire financial system has become dependent on relatively low interest rates and continuous refinancing.

The probability of policymakers deliberately recreating a Volcker-style monetary shock today is close to zero, in my view.

Today, the path of least resistance for governments is fiat currency devaluation. Rather than allowing the debt system to collapse under higher interest rates, policymakers have every incentive to reduce the real burden of debt through inflation and currency depreciation.

You cannot compare two gold charts while completely ignoring the monetary and fiscal conditions behind them.

The 1980s had room for Volcker. Today’s debt-driven system has very little.

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