The Underlying Theory Behind Really, Really, Bad Predictions

What do the biggest banks, the most prominent news outlets, and advanced AI models have in common? They were all wrong about the 2025 gold price by over $1000. While there is always a lot of uncertainty in the financial markets, being off by over $1000(over 30% of gold’s 2024 year-end price), is embarrassing. While it wouldn’t be uncommon for predictions to be wrong, it is interesting but not surprising that all of the predictions were wrong in the same direction, to the same extent. For as widely traded an asset as gold, particularly with how closely it is linked to large macroeconomic trends, there must be a fundamental misunderstanding for everyone to be wrong in the same way. Some theoretical bias must underlie such a predictably wrong group of predictions. While there is always randomness in financial markets, the systemic under-prediction of gold’s price comes from a failure to account for the inherent flaws of fiat money and the American institutional decline of the past few decades.

If you go back to December 2024 and January 2025, almost all gold price predictions for end of year 2025 will be around the $3000 mark or lower. At the time $3000 was seen as a bullish prediction. 4000 was thought to be possible in the next few years, but reaching it as early as early October 2025 was almost unthinkable. Most of the same fundamental factors that drove gold to its current high price were already there, but the instability of Trump’s trade policy may not have been fully accounted for. However, the Fed has not changed significantly, and Trump’s fiscal liberties had already been evidenced in the past. The decline of the dollar and the move to gold by national banks was a strong trend that was only accelerated by the Trump presidency. Such predictable long-term trends being exacerbated were not factored into gold price because a far too stable view of the status quo and two deadly assumptions blinded people to the future march of gold. Only people who grew out of these inherited assumptions could actually predict gold’s trajectory. …