Today, gold surged to a six-year high following signals from the Federal Reserve that rate cuts could be coming as soon as next month. While some believe that a more dovish Fed would be bullish for economic growth, the recent spike in gold prices offers a more cautionary note.

RealClearMarkets editor John Tamny explains:

To paraphrase the classical economic thinkers whom supply siders have historically (and rather wisely) sided with, gold is the commodity least influenced by outside influences. Precisely because there’s so much gold stock versus new discoveries of the yellow metal, its price is impressively stable. It’s no mere coincidence that gold has historically been used to define money. Its stability in terms of value makes it uniquely suited for just that.

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Importantly, the price of gold is yet again telling us a different story about the value of the dollar. That gold is rising, which is a sign of the dollar weakening, is evidence of what’s long been true: U.S. presidents generally get the dollar they want.

To paraphrase Tamny — gold is considered by supply-siders to be the most accurate (or more aptly, least imperfect) measure of inflation there is. When gold spikes, it is a signal that our currency is weakening.

Put another way, a worker with a $50,000 per year annual salary could buy 41 ounces of gold on the night President Trump was elected. Today, a $50,000 per year worker’s annual salary would only buy 35 ounces of gold. While there have been tax cuts and wage gains under President Trump, absent a good monetary policy that promotes a stable dollar, one can see how inflation eats away those gains and more.

Another warning signal on the dollar’s health stems from therecent spike in Bitcoin. As I previously wroteon the root cause of cryptomania:

One cannot overstate the role that ‘bad money’ has played in the explosion of demand for digital assets. …

As Investopedia noted in October 2016, China’s devaluation of the Yuan played a crucial role in Bitcoin’s early price surges:

The price of Bitcoin has recently surged at times when the Chinese government has devalued the Yuan. China has strict capital controls, which it makes it difficult for Chinese citizens to convert their Yuan in to foreign currency. Bitcoin, however, is hard to trace and knows no borders, making it a prime vehicle for offshoring money. China also accounts for close to 90% of all bitcoin trading volume on exchanges, and Chinese miners also control a large proportion of the mining power – which is how new bitcoins are minted. Some believe that the price of Bitcoin will continue to rise as more devaluations are expected from the Chinese government, in hopes to stave off a recession.

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Should the dollar’s value continue its decline … it stands to reason that more Americans will take the risk of entering the Wild West digital asset market in hopes of alleviating the devaluation of their money.

In my view, the recent spikes in the price of gold and bitcoin both result from the same cause: the market is anticipating an uptick in inflation. We will see next month whether the Fed delivers on the rate cuts markets expect, but for those hoping for a rate cut, these indicators should give reason for pause. Be careful what you wish for.