Gold has gained two additional safe-haven uses in recent years.
Last week was filled with drama. The sharp appreciation of the Japanese yen, the暴跌 of gold and silver, the specter of war involving Iran, suspicions surrounding program trading, and the震动 caused by the nomination of Warsh—each event tugged at investors' hearts and impacted financial market stability. Yet, by the week's end, the prices of most assets were not significantly affected. After a week of turbulence, the U.S. Dollar Index almost returned to its starting point, and U.S. stocks followed suit. The yield on the 2-year Treasury note rose slightly by 8 basis points. Crude oil prices climbed, while gold surged dramatically before falling back.
Gold experienced an史诗级 rally, briefly approaching the $5,600 per ounce mark, only to lose $800 over the subsequent three days. Given that gold was severely overbought, a short-term correction is hardly surprising. At 10 AM Eastern Time on January 29th, risk assets trading in the U.S. simultaneously plummeted, rebounding an hour later. Reports indicate this sharp decline was not triggered by trader selling nor a liquidity crunch, but rather by models, algorithms, risk controls, and margin requirements effectively taking over the market. As the most crowded and consensus trade, gold naturally became one of the biggest casualties.
The short-term trajectory of gold remains to be seen, but these developments do not alter the author's bullish outlook. Under the banner of de-dollarization, sovereign funds, institutional capital, and retail money are all flowing into this asset once considered a non-mainstream alternative investment. Investing in gold offers no interest or dividend income; it is typically used as a safe haven, firstly to hedge against inflation risk, and secondly to hedge against the risk of war and conflict.
In recent years, gold has gained two additional safe-haven uses. The first is to hedge against central bank recklessness. Since 2008, major industrial nations' central banks have abandoned traditional operations,疯狂埋单 for government fiscal deficits, and have transformed this from a temporary measure for coping with financial crises into a常规手段 of monetary policy. Ultra-loose monetary policy has become normalized, and inflation has also trended towards normalization, with wage growth failing to keep pace with rising prices, brewing an affordability crisis. Gold is favored as a safe-haven tool远离央行之手.
The second is to hedge against U.S. government recklessness. The post-World War II international political, economic, trade, and monetary order was originally established under U.S. leadership. However, the actions during President Trump's potential second term have颠覆了 the perspectives of both U.S. allies and adversaries; the U.S. is no longer the anchor of the international order. Pursuing its own interests, or even merely as a筹码 for extreme pressure, the U.S. might freeze the assets of former allies, just as it did with Russian assets. Trump might potentially win Greenland, but he would lose America's credibility in the world.
In the early years of this century, the European Central Bank and sovereign funds大规模抛售 gold, citing the lack of interest income; today, they are buying heavily, citing immunity from geopolitical shocks. These four safe-haven uses combined represent a confluence of common needs from different countries, different entities, and different诉求. The author believes gold is no longer an alternative investment but a necessary asset allocation in the new monetary and geopolitical environment.
Trump nominated Kevin Warsh as the next Federal Reserve Chair, an appointment requiring confirmation by a Senate vote. In reality, Trump's preferred candidates have consistently been only two: White House Chief Economic Advisor Hassett and former Fed Governor, now Stanford professor, Kevin Warsh. Hassett is a staunch implementer of Trump's philosophy and was the首选 for the new chair, but the White House's judicial investigation into current Fed Chair Powell blocked Hassett's path to Senate approval. BlackRock's fixed-income chief, Rick Rieder,一度成为热门; his views on rate cuts and balance sheet expansion align closely with Trump's, but his history of long-term donations to the Democratic Party made Trump hesitate.
Trump is not unfamiliar with Warsh, having interviewed him during the selections for both the previous Fed Chair and the current Treasury Secretary. During his tenure as a Fed Governor from 2006 to 2011, Warsh was a staunch supporter of Bernanke's QE policies and possesses crisis management experience; however, he does not advocate for the normalization of balance sheet expansion policies. After leaving the Fed, Warsh joined a prominent family office, commands deep respect on Wall Street, and maintains good relationships with members of Congress—all positives for his future work.
Warsh believes the U.S. economy can sustain expansion without significant inflation; he is a believer in AI-driven productivity growth. Therefore, while his rate cuts upon taking office might not be as aggressive as Hassett's would have been, he would still gradually lower rates to a neutral level. This contrasts sharply with Powell's recent暗示 that the rate-cutting cycle is over. However, Warsh is cautious regarding QE, advocating against轻易扩张 the balance sheet under non-emergency conditions, which is不利 for lowering Treasury issuance costs and will require further磨合 with Treasury Secretary Besont (with whom he previously worked at a hedge fund).
The author believes Warsh was not Trump's first choice but remains a viable partner. His core policy approach as Fed Chair would likely involve cutting rates but not expanding the balance sheet. Should major turbulence occur in the economy or markets (such as an AI bubble burst or a Treasury market crash), he would presumably not hesitate to implement rescue measures. However, under normal economic operation, Warsh might prefer to focus on the Fed's traditional dual mandate of employment and inflation, leaving the task of日常维持经济秩序 to fiscal policy.
Another major story last week was the暴跌 of the U.S. dollar. The dollar's sharp decline began with the yen, after the Kamisaka苗 government announced a snap election and promised a two-year suspension of the consumption tax on food. This measure, creating a fiscal budget gap without specified funding sources, could significantly increase the fiscal deficit, leading to a崩盘 of Japanese government bonds and the yen, with the USD/JPY rate一度冲击 160. This prompted紧急联手 intervention by Japan and the U.S. The New York Fed's calls to dealers for quotes triggered a dramatic yen rebound, pushing the Dollar Index to a four-year low.
Calculated by purchasing power parity, the U.S. dollar is overvalued; a return to the mean is part of market price mechanics and is understandable. The long bull market in U.S. stocks has attracted substantial overseas capital into dollar-denominated assets, much of it leveraged. A further slight depreciation of the dollar is not surprising, especially if long-held Japanese and European funds in the U.S. begin repatriating to their home markets.
However, the author does not believe the dollar will experience another rapid, major depreciation for three reasons. First, a significant further depreciation would make imported inflation a major problem. This is an election year, and voters' core demand is to reduce the rising cost of living. Second, the U.S. needs inflows of foreign capital to maintain stable and rising asset prices. The formation of a depreciation expectation for the dollar is highly不利 for attracting foreign capital inflows. Third, the pace of interest rate cuts under a Warsh-led Fed might be slower than anticipated. This dollar depreciation originated with official intervention in the JPY/USD rate, and it is believed the U.S. Treasury has sufficient tools to prevent excessive depreciation and even market panic.
More concerning is that Trump's aggressive actions over the past year have created fissures in the credibility of the U.S. dollar, which may be long-term and structural. Trump's tariff wars have yielded advantages against most countries, significantly increasing U.S. tariff revenue, but they have destroyed the post-war trade order that the U.S. itself helped build, severely damaging America's软实力 as a world leader. The global seigniorage advantage enjoyed by the U.S. for decades is loosening.
Trump's extreme pressure on Greenland and his sarcastic remarks at the Davos forum have sent chills down the spines of U.S. allies. The U.S. is no longer a reliable ally; not only is its security guarantee perceived as unreliable, but it might even impose sanctions at any moment. If Trump felt like it one day, his threat to freeze the assets of European allies is not impossible. Recently, numerous European sovereign wealth funds and insurance funds have begun adjusting their dollar asset allocations. Apart from a few high-profile statements, most of this activity is happening quietly.
Since the author entered the industry, U.S. Treasury bonds have been considered zero-risk assets. Now, however, Uncle Sam, in cahoots with the Fed, is effectively cheating, creating vast amounts of dollars out of thin air to exchange for real goods and assets from abroad. Furthermore, the security of allied nations' assets held in the U.S. may also be under threat. Trump's restructuring of the world order will ultimately lead to a global reassessment of the U.S. dollar's creditworthiness.
The focus this week will be on the U.S. January non-farm payrolls report and the peak period for earnings reports from major U.S. companies.
[The author is President and Chief Economist of Springwater (Hong Kong). This article represents purely personal views and does not represent the official stance or forecasts of the author's institution, nor is it investment advice or solicitation.]
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