Friday’s plummet in precious-metal prices shows the danger of being late to a rally that has gone far beyond reality.

What if, and bear with me here, the wild gyrations in gold and silver prices are actually telling us something?

There are three plausible messages from the rise in gold prices. I’m not convinced that any of them provide a full explanation for what’s going on. 

But all have a grain of truth, and tell us something about how investors in stocks, bonds and currencies are navigating a very uncertain time in the world.

1) Investors want gold as a dollar alternative

Countries that fear falling afoul of Western sanctions have been buying gold rather than dollars for their foreign-exchange reserves for several years. But last year, central banks reduced their buying as prices jumped, according to the World Gold Council.

Instead, buying lately has been dominated by private investors, especially via exchange-traded funds. They might simply be scooping up gold expecting that worried central banks will intensify their buying at a still-higher price, but at best that’s a hope.

If they’re right, gold should be rising as the dollar falls against other currencies. In fact, gold has moved independently of the dollar day to day in the past year, although overall the dollar is down a lot while gold has gone wild. 

Treasury yields should also rise relative to other countries as money leaves America. But U.S. 10-year Treasury yields have fallen a little since the start of last year, while those of Japan, France, Germany and the U.K. are all up, in some cases by a lot.

2) The ‘debasement trade’

An idea that appeals to a lot of those scarred by the last bout of inflation is that another is on the way, caused by hefty government stimulus and a deliberate policy of weakening the dollar. A weak dollar is mechanically good for gold, since it is priced in dollars, while gold is often touted as a safe asset to sit out inflation. The Swiss franc, the closest thing to a haven currency, has also performed well in the past couple of weeks, along with the low-debt oil-exposed Norwegian krone.

Friday’s plunge in gold and full-blown crash in silver prices support the idea that investors were worried about debasement. The drops came as President Trump chose Kevin Warsh to chair the Federal Reserve. He is seen as less likely to slash rates than the other Kevin in the running, Kevin Hassett.

Prices moved on the day mostly as you should expect from the selection of a hard-money hawk, or the avoidance of a soft-money dove: Stocks, gold and silver fell; the dollar and long-term Treasury yields rose. The exception came from the nuance that Warsh wants to sell the Fed’s stockpile of Treasurys, but has turned dovish on interest rates, so 2-year Treasury yields fell a little.

Stimulus from President Trump’s tax cuts should be in the tens of billions of dollars this year, something likely to boost consumer spending, shore up the economy and make inflation a little higher than it otherwise would be.

The trouble is that inflation fears should have shown up in bond markets, and they just haven’t. 

Long-term inflation expectations, measured by the break-even for the five years starting in five years’ time, have actually dropped this year and are lower than at the start of last year. 

Why would debasement fears only show up in precious metals? Indeed, the Swiss franc moved against the dollar exactly in line with the euro until Japan’s snap election two weeks ago, suggesting no obvious investor flight to currencies perceived as debasement-proof before that.

Fear of a far weaker dollar in the future ought to help U.S. stocks, too. While hardly a haven from inflation, stocks ought to have some protection both due to foreign earnings and because sales should rise with consumer prices. Instead, U.S. stocks lagged far behind overseas stocks both this year and last year.

3) A global boom ignites inflation

The growing confidence in global growth has led to markets that act a lot like the years before the 2008-09 financial crisis. 

From 2001 to 2007 investors chose foreign over U.S. stocks, smaller companies over larger, and preferred cheap value stocks to growth stocks. Strong economies boosted copper demand, and the price soared.

Gold thrived, too, rising from $273 an ounce at the start of 2001 to $634 by the start of 2007, before the crisis came into view.

The same happened for the past couple of months as investors fell out of love with Big Tech’s spending on artificial intelligence. Then this year small stocks smashed the biggest, silver surfed a wave of private buying and gold jumped 21.8% in the first 21 trading days of the year, the most over such a period since late 1999. Copper was already on a roll thanks to data-center construction, but since November soared another 20%, before having its worst day on Friday since the Trump tariffs last April.

Stronger global growth is a reasonable thing to argue for, given Japan’s promised tax cuts, huge military spending in Germany, hopes for at least some China stimulus and the possibility of peace in Ukraine.

But it doesn’t really explain why the dollar fell this year exactly as much against the yen, where new stimulus is the driving force, as against the euro, where stimulus was baked into the price last year, or sterling, where nothing changed. It certainly doesn’t justify the tripling in the price of silver in 12 months.

Gold has a role in all these stories, but the scale of the moves, combined with the soaring and crashing of silver, shows a lot of froth. 

Like the grit in the oyster, there’s a solid core of truth inside the vanity of wild price swings. But Friday’s plummeting precious metal prices show the danger of being late to a rally that has gone far beyond that truth.