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The conflict between Israel and Iran is revealing some startling facts about the financial system.

As Zerohedge noted in an excellent write-up of recent developments, Iran struck Israel with multiple missile attacks overnight. As of the time of this writing, there are at least 60 Israelis wounded, 78 Iranians dead, and more than 320 Iranians wounded. We have no idea how this will play out, as we cannot claim to be experts on Middle Eastern geopolitics.

What we can note, however, is how the financial system is reacting to this conflict…

On Friday, the day after the attacks by Israel on Iran, the $USD barely rallied. The greenback did jump on the initial news hitting the wires around 8 PM, but then traded sideways for the remainder of the session. Looking at the chart, you’d be hard pressed to identify that a potential major global conflict was underway.

This is shocking. Historically, the $USD has rallied hard as a safe haven during geopolitical turmoil, e.g., the $USD rallied 2% on 9/11, as well as when Russia invaded Ukraine. That is NOT happening this time. Instead, the $USD is barely rallying at all.

Of course, one single day of weak $USD action in the face of geopolitical conflict doesn’t necessarily translate to anything major. But when you consider how the $USD acted relative to gold, the story becomes more interesting.

Gold erupted higher on Friday. Denominated in $USD, the precious metal hit new all-time highs. Gold also hit new all-time highs when priced in Yen. And it’s not far from doing so when priced in Euros or Swiss Francs.

See for yourself…

This is, effectively, the financial system signaling A) geopolitical risk B) another round of money printing is coming C) gold is now disconnecting from its historical relationships to the fiat currencies and is becoming a standalone asset.

Regarding that last point it was just revealed that gold has surpassed the Euro as the 2^nd most owned reserve asset by global central banks. Put another way, central banks want to own gold more than Yen, Euros, Yuan, or any other currency (save the $USD).

That is a tectonic shift. And as investors, our job is to take note of it and invest accordingly.

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