【Hotspot Tracking】The U.S. Dollar Crisis Is Intractable; Gold Remains the Top Choice

On 21 October, gold witnessed its largest single-day drop in nearly twelve years. Spot gold pulled back from the intraday high of $4,374.79 per ounce to close at $4,123.37 per ounce, with a staggering single-day decline of 5.33%. Doubts about whether the gold bull market has ended have flooded the market. However, the logic behind gold's rally remains intact for now, and the decline is likely just a short-term movement. The outburst of short-term sentiment has triggered a stampede effect in the market.

Weakened Safe-Haven Sentiment & Profit-Taking by Bulls

Peng Cheng, a market strategist at Zhisheng Research(exclusively invited by Plotio), believes that the recent decline in gold is mainly due to the overcrowded long position market in precious metals. Since gold prices have been rising continuously since September, the overall maximum increase has exceeded 27%, accumulating substantial profit-taking orders. Longs have closed their positions to lock in profits and exited the market, triggering a short-term stampede effect and subsequently leading to a sharp drop in gold prices.

The direct trigger for the short-term market collapse is the weakened safe-haven sentiment. Firstly, there is a significant turnaround in China-U.S. tariff issues. On 29 August, the U.S. Federal Circuit Court of Appeals ruled on the tariff policy implemented by former U.S. President Donald Trump, deeming his reciprocal tariffs illegal. On 5 November, the U.S. Supreme Court will hear the "Trump Tariff Legitimacy Case" that concerns the direction of global trade, and it is highly probable that Trump will lose the case currently. The backlash of tariffs has already emerged, with the most direct victims being the U.S. itself and its allies, including the recent U.S. soybean issue and the Australian iron ore issue. The probability of China and the U.S. resolving disputes through negotiations is high.

Secondly, there is a turnaround in the Russia-Ukraine conflict. Several European countries are jointly drafting a 12-point peace plan with Ukraine, aiming to freeze the conflict based on the current front lines. The Russia-Ukraine conflict has seen a glimmer of peace, and geopolitical risks have significantly decreased. These factors have weakened safe-haven sentiment, prompting gold longs to take profits and thus driving the price decline.

The Crux of the U.S. Dollar Crisis Persists

On the surface, the current gold bull market is driven by factors such as global uncertainty and the downward trend of real interest rates, but the crux remains the U.S. dollar crisis, with problems emerging in the dollar's internal and external dual circulation. The U.S. exports dollars through trade deficits, and other countries obtain foreign exchange reserves dominated by the dollar. These countries then use dollars to purchase assets such as U.S. Treasuries and invest in the U.S. financial market, supporting the U.S. fiscal deficit.

However, the problem is that the U.S. has launched a tariff war, pursued manufacturing reshoring, and sought diversification in the settlement of bulk commodities such as oil and iron ore. These actions have greatly weakened the dollar's export channels, leaving the external dollar circulation in a state of obstruction.

[Important Disclaimer:The above content and views are provided by Zhisheng, a third-party cooperative platform, for reference only and do not constitute any investment advice. Investors who trade based on this information shall bear their own risks.]

In the event of any inconsistency between the English and Chinese versions, the Chinese version will prevail.This article is from Plotio. Please indicate the source when reprinting.

Secondly, the U.S. attracts a large amount of capital with its developed and sound financial market. This capital is invested in high-tech enterprises, enabling the U.S. to maintain a leading position in global technology and retain technological hegemony, which in turn further prospers the U.S. financial market. Nevertheless, as issues such as U.S. debt become increasingly severe, the attractiveness of the U.S. financial market to global capital has declined, and its driving effect on technology has weakened. Meanwhile, with the advancement of technological strength in countries such as those in Asia, the U.S. technological advantage is diminishing, reducing its support for the U.S. financial market, and the issue of asset bubbles has also begun to draw market attention. The internal circulation is also in a precarious state.The crisis in the dollar's internal and external dual circulation has shaken the hegemonic status of the dollar. However, there is currently no currency that can replace the dollar, and gold is one of the few alternatives. This is the most fundamental logic supporting gold's rise. If the U.S. dollar crisis is not resolved, capital will continue to flow into the gold market, driving up gold prices. In the medium term, gold is still likely to stabilize around the $4,500 level.

[Important Disclaimer:The above content and views are provided by Zhisheng, a third-party cooperative platform, for reference only and do not constitute any investment advice. Investors who trade based on this information shall bear their own risks.]

In the event of any inconsistency between the English and Chinese versions, the Chinese version will prevail.This article is from Plotio. Please indicate the source when reprinting.