Investors chose the easy answer in 2022... and it was the wrong one.

Sure, it fit the bill. It looked correct based on all the conventional wisdom. But once you dig a little deeper, it's clear why it led to losses.

You see, investors thought inflation would be "gold's savior." After all, an economy weakened by out-of-control inflation should have been the perfect backdrop for the metal to stage a comeback... right?

The idea made sense. Gold soared during America's last serious battle with inflation. The metal's price jumped an incredible 1,800% from the time the U.S. broke the gold standard in 1971 through peak inflation in 1980.

Hard assets should go up in value when everything is getting more expensive. Combine that logic with an impressive real-world example, and it's easy to understand why the metal has earned a reputation...

Gold should do best when inflation is bad.

But gold didn't live up to its name as an inflation hedge last year. And anyone who hoped it would be a ticket to big gains was disappointed.

Today, I'll explain why it happened – and what really matters for gold prices...

Not only did the metal fail to protect investors' portfolios, but it also had a downright terrible year. Gold fell for seven straight months in 2022... the longest decline in our lifetimes. Deutsche Bank dubbed it the worst losing streak since 1869.

U.S. inflation was near its highest level in decades... hitting a peak at 9.1% in June. And it stayed high through the rest of the year. Yet gold didn't deliver. The conventional wisdom was proven wrong.

So from here, we have two options when it comes to gold. We could give up on the metal entirely... or we could rethink the original premise.

The truth is, inflation isn't the main character of gold's story. And funnily enough... that truth has been hiding in plain sight all along. Everyone was just too focused on inflation to realize it.

A quick study of history shows what's really at play...

Since 1973, we've seen 21 years in which inflation was rising. Yet, gold only went higher in 13 of those 21 years.

That's roughly a 60% win rate. Sure, it's a little better than flipping a coin. But it's a far cry from a direct correlation.

It also hides the real force behind those gains. Yes, several of the positive years for gold happened in the 1970s when inflation was rising. But that doesn't mean inflation was the cause...

Instead, there was another indicator at work. It tends to appear when inflation is on the rise. And it can also happen regardless of inflation...

That indicator was a falling U.S. dollar.

When the value of the dollar falls, the value of assets priced in dollars goes up. That includes commodities like oil, gold, and silver, to name a few.

Since 1973, there have been 20 years in which the U.S. dollar was down. Gold rose in 17 of those years. That's a solid 85% win rate.

Not to mention, gold was only down 5%, 2%, and 0.3% in the three years when the metal fell alongside the dollar. Considering that gold's biggest drawdown was 19% when inflation was up, those losses were small.

Last year, we had rising inflation and a rising dollar. That's a less-common setup. It has only happened in 12 of the years since 1972. And in eight out of those 12 cases, gold prices fell.

This explains gold's lackluster performance in 2021 and 2022... even though the Federal Reserve was printing money and inflation was on the rise.

Since the 1970s, the narrative has been that gold should do well when inflation is rising. That's exactly what investors expected last year. But that narrative is all wrong.

Inflation isn't what matters for gold... It's the U.S. dollar.

The dollar has been falling since October. That's when gold's recent rally began... And this new trend means gold should redeem itself this year.

Good investing,

Chris Igou