One book I've read that I initially found very difficult to understand is The Alchemy of Finance by George Soros.
At first, Soros' ideas felt abstract and almost philosophical. But as you watch more market cycles unfold, his framework begins to make far more sense. Over time you start to see the patterns he was describing playing out in real time across different assets.
At the core of the book is Soros' concept of reflexivity.
In simple terms, reflexivity means markets do not just reflect reality -- they can also shape it.
Traditional finance assumes that prices simply follow fundamentals. Soros argued the opposite: investor beliefs influence prices, and those price changes can then influence the fundamentals themselves.
Eventually, expectations become too extreme, and the process reverses. This is how boom-bust cycles form.
Understanding where an asset sits in that reflexive cycle can be extremely valuable for traders and investors.
Gold is a good example of a market where reflexivity is developing, but not yet at a speculative extreme.
The underlying trend behind gold is structural. Over the last few years central banks -- particularly emerging markets -- have increased their gold reserves. This is largely driven by geopolitical tensions, concerns about dollar weaponisation, and a desire to diversify reserves.
As prices rise, that narrative gains credibility and attracts additional flows from institutions and macro investors. This is the reflexive loop beginning to take shape.
However, gold's reflexivity is slower and weaker than many other assets because price increases do not directly change supply or earnings the way they might in equities.
From a technical perspective, gold currently appears to be respecting a descending channel structure on the lower time frames.
If the market continues to decline, price could simply respect this channel and drift lower toward support. Another possibility is that the recent structure evolves into a larger triangle formation as the market consolidates.
For now, it's a developing structure -- and time will ultimately reveal which pattern resolves.
Bitcoin arguably fits Soros' reflexivity theory even more clearly.
The underlying trend over the past decade has been institutionalisation. What began as a niche digital asset has slowly moved toward becoming a recognised asset class.
That shift allowed a powerful narrative to form: Bitcoin as "digital gold" and a potential store of value.
The reflexive loop is straightforward:
- Because Bitcoin's value is heavily driven by belief and adoption, the reflexive mechanism is extremely strong.
At the moment, Bitcoin appears to be somewhere between the expansion and acceleration phase of the reflexive cycle. Institutional inflows and growing acceptance continue to support the narrative, though we are not yet seeing the extreme retail speculation typical of cycle peaks.
The key macro event next week will be U.S. inflation data.
Inflation prints matter because they directly influence interest rate expectations, which then ripple across:
- A hotter-than-expected CPI print would likely push yields higher and strengthen the dollar, which could create headwinds for gold and broader risk assets.
Interestingly, there are reasons to watch this print carefully.
Recent ISM Prices Paid Index data came in significantly hotter than expected, suggesting input costs are rising again. Part of that pressure appears to be coming from energy prices, which have been climbing recently.
If that pressure feeds into the CPI report, inflation could come in slightly hotter than the market currently expects.
Soros' reflexivity framework reminds us that markets are not purely rational systems. They are driven by narratives, capital flows and investor belief.
Right now both gold and Bitcoin sit within reflexive processes, but they are driven by different mechanisms:
- With CPI data approaching next week, macro expectations could shift quickly. If inflation surprises to the upside, it may temporarily interrupt the reflexive trends currently supporting risk assets.
For now, the key question remains the one Soros always asked:
Is the feedback loop strengthening -- or beginning to break?