Gold Surge Signals Danger: Dollar Collapse Looming?

This year, gold has once again become the "hot cake" in people's eyes.

According to data from the gold price inquiry website, at the beginning of this month, the price of gold jewelry from some jewelry brands once broke through 630 yuan, and although the price has fallen in recent days, it is still as high as 615 yuan.

Faced with the hot gold market, some people are waiting for the gold price to fall, and some people are ready to start, but overall, people with the mentality of "buying when the price is rising, not when it is falling" still account for the majority, leading to considerable sales in the domestic gold market.

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Why has the price of gold soared?

It may be different from the answer everyone imagines. In fact, the fluctuation of gold prices is largely influenced by the dollar across the ocean.

And most importantly, the surge in gold prices has released a dangerous signal: the dollar may be in danger next year.

The relationship between gold and the dollar

Some people may wonder how the price of gold is related to the dollar, and what is the relationship between the two?

Let's start from the essence of gold. Although gold, as a precious metal, is a kind of commodity, at the same time, gold also has financial attributes from birth.

This means that gold itself is a financial product, and its financial attributes determine that the price of gold will be linked to the actual interest rate and has a strong correlation with the US dollar index.The so-called US Dollar Index refers to the weighted result of the US dollar against six other major currencies. The higher the US Dollar Index, the more the US dollar appreciates, and the more currency it can be exchanged for.

Due to the US dollar's three consecutive pauses in interest rate hikes, the expectation of a rate cut next year has significantly increased, leading to a sharp decline in the US Dollar Index. Consequently, gold prices have also seen a surge.

The reason is straightforward: previously, $1,000 could buy 20 grams of gold, but now with the sharp decline in the US Dollar Index and the devaluation of the US dollar, $1,000 can only purchase 15 grams of gold. Naturally, the price of gold will rise accordingly.

Therefore, by comparing the charts of gold prices and the US Dollar Index, we can see that they generally exhibit a negative correlation, akin to a "seesaw," where if one is high, the other is low, and vice versa.

Gold is in short supply, and confidence in the US dollar is waning.

In addition to its financial attributes, gold, as a commodity, is also influenced by market supply and demand.

Furthermore, since gold production is relatively dispersed, the supply has been stable. Thus, fluctuations in gold prices are primarily affected by demand.

In simple terms, the more people who buy, the tighter the gold market becomes, and the higher the price.

In the third quarter of this year, global central banks net purchased 337 tons of gold, setting an all-time record. Moreover, in the first three quarters of this year, global central bank gold demand increased by 14% year-on-year, reaching a record 800 tons.

The significant purchase of gold by global central banks and the substantial increase in demand have driven up gold prices, contributing to a bull market in gold prices this year.The crux of the matter lies in the fact that gold, as a widely recognized safe-haven asset, is chosen by global central banks for purchase primarily because confidence in the US dollar is gradually diminishing.

The US dollar, as the dominant currency in the global monetary market, was previously favored for purchasing US Treasuries and using dollars because the national credit of the United States served as a backing endorsement, instilling sufficient confidence in the dollar.

However, the Russia-Ukraine conflict, where the United States and its allies directly froze half of the Russian central bank's $640 billion in foreign exchange reserves, has revealed the true face behind the American spirit of contract.

Is it possible that the US dollar is not as reliable as imagined? Could the United States, with a mere thought, turn a country's dollars into waste paper?

Furthermore, the exacerbation of the US fiscal deficit, the explosion in the scale of US Treasuries, and the escalating geopolitical conflicts have all invisibly increased everyone's risk-aversion mentality, viewing gold as a safe haven and purchasing gold for risk aversion.

Is the US dollar on the verge of collapse?

This year, in addition to buying gold, another action taken by global central banks has been the continuous reduction of US Treasury holdings.

According to the latest data released by the US Department of the Treasury, among the top 20 overseas official investors in US Treasuries in October, nine countries and regions have chosen to reduce their holdings, accounting for 45%.

China, as the "second-largest overseas creditor" of the United States, has once again reduced its holdings by $8.5 billion, marking the seventh consecutive month of reduction. Compared to the holding scale of $867.1 billion at the end of last year, it has sold nearly $100 billion in US Treasuries.

The main reason why global central banks have chosen to sell US Treasuries and buy gold is the skyrocketing scale of US Treasuries. Given the current fiscal situation in the United States, the probability of a financial crisis is gradually increasing.The risk associated with US dollar assets is increasing, prompting many to exchange their dollars for the safer haven of gold. According to estimates by the World Gold Council, hoarding gold is expected to remain a global central bank trend next year.

Moreover, the Federal Reserve's interest rate hikes have reached their limit, and it is almost certain that a rate-cutting cycle will begin next year, exerting pressure on the US dollar exchange rate and inevitably causing the US Dollar Index to decline further.

For modern currencies, credit is the "foundation of existence," and due to the various "unconventional maneuvers" of the US government, the credibility of the US dollar continues to diminish. Most critically, in the short term, we see no hope for improvement. Selling dollars and buying gold has become an irresistible trend.

Whether the US dollar will "collapse" is uncertain at present, but if this trend continues, the US dollar will inevitably face a crisis of survival sooner or later.

In conclusion:

Behind the decline in US dollar credit lies the skyrocketing US debt, the repeated "weaponization" of the US dollar by the United States, and the gradual loss of confidence in the US dollar.

The significant signal released by the surge in gold prices is the gradual decrease in confidence in the US dollar. With the Federal Reserve expected to start a rate-cutting cycle next year, this trend is likely not only to persist but also to intensify.