Trump just announced sweeping tariffs on the U.S.'s major trade partners—imposing 25% tariffs on both Canada and Mexico and 10% on China.
Instead of responding with a military campaign, China is focused on attacking the US where it hurts most, its wallet.
China, who bought 600 tonnes of gold in 2024 worth $50 billion, has blown a hole in the gold market.
China only holds about 2,270 tons of gold equal to about 1% of GDP.
China needs 4X that amount or 9,000 tonnes to back 4% of GDP.
4% gold reserve as a percentage of GDP is the standard across Europe, which holds 5.4% of GDP in gold. The G7 holds 2.9%, with the US at 2.3%.
China has been the #1 holder of US treasuries.
But China has been diversifying out of Treasuries instead using their trade surplus to buy gold over the past few years.
China's Treasury holdings have dropped from $1.3 trillion in early 2024 to only $700 bil by year's end.
This is why US 10 year rates have increased 100 bp's, or 1%, despite the Fed cutting rates.
The buyers have gone away, and may never return.
This puts the US in a tough spot…
Most of the US debt is currently rolling over at the short end of the curve.
Treasury Secretary Scott Bessent needs to finance the US's $37 trillion dollar debt at the long end of the curve, and the demand isn't there.
Our foreign trade partners have stepped away from purchasing US debt.
Trump and Bessent will be forced to implement Quantitative easing 5 (QE5), representing Yield Curve Control to create artificial demand from the Fed to drive rates lower.
This is straight up money printing that would significantly devalue the USD and significantly damage its role as the world's reserve currency.
Trump knows he needs to support the value of the USD, and that's been gold's role for 1,000 years.
That's why gold is rushing back to the US. 4.0 mil gold ounces, the largest outflow ever, worth $11.2 billion, left the LBMA last Thursday and Friday to return to the US based COMEX vault.
The last time this much gold flowed back to the US was….never!
