Since decades, the United States is considered to be a safe investment destination for investors around the world.
The dollar is the anchor of the global economy, while the confidence that markets had in Washington’s financial position was close to certainty.
Things are beginning to change. There are rumors of the US losing its confidence. There is proof to support this.
Gold is breaking record highs, investors are once again circling Bitcoin, and long-dated government bond prices are falling. The BRICS countries are serious.
These are all strong indicators that global financial infrastructure is facing a major re-rating. Investors search for “neutral reserves assets” – that is, assets which no government could dilute, sanction or weaponize.
What is the pressure on long-term bonds?
US Treasury Market has been the focus of all wrong attention. The 30-year bond yield has been hovering near 5 percent for years. This is the highest level in many years. It moves in conjunction with the sell-offs in the UK, eurozone and Japan.
Investors now expect an extra reward for holding long-term bonds.
The ACM model of the New York Fed shows that the premium for 10-year terms has recently reached levels not seen since more than 10 years ago. This is because of the huge issuance and growing uncertainty.
In 2025, the US is expected to borrow over one trillion dollars alone in the third quarter. Another six hundred billion will be borrowed in the last months of that year. Even for the reserve currency of the world, these are huge amounts.
The macro-environment is also not conducive. The August payrolls increased by only 22,000 positions, and the unemployment rate went up to 4,3%. The economy created nearly one million less jobs in the last year, according to benchmark revisions.
The number of Americans without jobs has now exceeded the available positions for the first since the 2020-2021 lockdown.
The torrent of investment has caused investors to re-price their risk in holding for a longer period of time.
The change in foreign buyers is not sudden, but it’s evident. Japan’s holdings increased to approximately 1.15 trillion US dollars in June while China’s declined to 756 billion.
The auctions have cleared, but at higher yields reflecting greater uncertainty and risk premia.
Gold is breaking records
This month, gold has reached successive records highs. It is now trading at over 3,640 dollars an ounce. Not only are speculative flow but also official flows driving the gold market.
In August, the People’s Bank of China continued its streak of buying for a 10th consecutive month. Since 2013, central banks have added more than 1,000 tonnes of gold per year, the highest rate since the 1960s.
ETF flows are a confirmation of private investors’ side. Gold-linked funds experienced the biggest inflows since April in August. Nearly four billion dollars were pumped into these funds in just one week.
The gold mining stocks have been leveraged to bets on the trend. GDX Miners ETF is up almost 100% year-to-date, and Newmont, which is the sole gold mining company in S&P 500 index, has been one of its top performers.
It is easy to understand. The appeal is clear. Gold does not offer a yield but offers something even more valuable today: It cannot be devalued by policies, printed or sanctioned. Gold is the only asset that can be accepted by all governments.
Neutrality is a valuable commodity in a world of huge deficits and tariffs.
The BRICS and SCO: What they are Building
Geopolitics is another dimension to this story. At this month’s Shanghai Cooperation Organisation Summit in Tianjin, President Xi Jinping urged a new global governance initiative and offered loans and technological projects to other members.
He suggested a new bank for development and a greater use of the national currency in settlements. In a well-staged display of unity, India’s Modi and Russia’s Putin stood next to him.
It is clear what the intention of both countries are. China and Russia are interested in building non-dollar payment systems. India, on the other hand, is more pragmatic and wants to see the group address their trade deficits with China while still being part of the institution.
The broader BRICS, which now includes new members from Africa and the Middle East, also pushes for a trade settlement system that does not use the dollar.
It is highly unlikely, however, that Treasuries and the Dollar will be replaced by tomorrow. The US financial system is still deep, liquid and unparalleled.
Each new move, like a currency oil exchange here or a regional bank there, chip away at the monopoly. In the space between ambitious goals and their execution, there is gold.
Gold is the ideal asset for central banks who cannot trust either a system based on the yuan or one backed by rubles.
What bitcoin and cryptocurrency are
Bitcoin has not made its way to official reserves yet. Martin Schlegel is the Swiss National Bank’s chairman.
The central banks continue to view it as too volatile, and insufficiently liquid. In private portfolios and payment infrastructure it’s becoming more of a neutral parallel reserve.
Brian Armstrong, CEO of Coinbase, suggested that the US fiscal strain could eventually push bitcoin to global reserve status when it is in private hands.
The policy is changing rapidly. The US passed the GENIUS Act in July creating a framework that is clear for stablecoins.
Treasury Secretary Scott Bessent argues that stablecoins regulated by Treasury Bills could strengthen the dollar’s dominance. Crypto rails could end up strengthening the dollar rather than reducing its reach.
Russia’s rhetoric is the exact opposite. One senior advisor to President Putin claimed that Washington was trying to “rewrite rules on the gold and cryptocurrency markets” in order to avoid its 35 trillion-dollar debt.
It was claimed that the US will move their debt to stablecoins and devalue them, then start over. Ironically, Russia is developing a stablecoin backed by the ruble for international payments.
This is what makes the difference. Gold is the preferred neutral reserve currency for states. Bitcoin is the digital equivalent for private actors, such as family offices and hedge funds.
Stablecoins can be used by governments to facilitate trade and finance, regardless of whether they are dollar-based.
Investors should be aware of the following:
For the moment, there is no reason to fear a decline in Treasury confidence. It is, however, a repricing.
Investors will pay a premium for holding long-term bonds when the deficit is growing and policies are uncertain. This repricing will continue to be structural.
Gold’s run to record highs isn’t a trend. The gold record run is confirmed by the flows, miners’ performances, and central bank purchases, even when prices are high.
Reserve managers and investors are once again able to use gold as a way of protecting themselves against institutional and policy risk.
Bitcoin is a more minor role, but it’s still important. Bitcoin is not likely to be an official reserve. However, it can play a similar role in private portfolios as gold does for central banks. It’s an asset that cannot be controlled by governments and has no counterparty risks. It attracts capital in times of fiscal or political strain.
The US is driving this change. It is embedding Treasury Paper into the digital financial rails by normalizing stablecoins.
This could lead to a new surge in demand for banknotes, while also enhancing the need for neutral reserves over the longer term.
Bonds, bitcoin, and gold all tell the same story, but in different language. Although the world remains anchored to the dollar, the value of that anchor has been marked down.
Assets with vaultability, digital or both are now being valued higher. It is impossible to predict what will occur in five or ten years.
As updates are made, this post US dominance has broken down: the new rise in neutral reserves assets could be altered.
