A tectonic shift like no other

GOLD – an asset class that has hardly any room in a portfolio manager’s asset allocation strategy – has made moves that not many people saw coming, especially this year.

But with gold up more than 50% year-to-date, despite the recent pullback, its glittering performance this year is hard to ignore.

Not only gold, even silver has also defied all odds by rising more than 60% year-to-date at the time of writing.

The rise of these precious metals brings into question what is going on in the financial market today and where fiat monies stand, when even the safe-haven status of the US dollar is beginning to be questioned by many.

Gold’s market capitalisation today of almost US$28 trillion makes it the first asset class to reach such a valuation point, as central banks mopped up more gold than ever, diversifying away from over-dependency on the mighty dollar.

Gold as a percentage of central banks’ international reserves is now inching closer to the total percentage holdings of US Treasuries.

De-dollarisation

One of the issues with the dollar is its perceived weakness and US President Donald Trump’s measures to impose tariffs on goods imported from foreign nations.

For countries like China, which run almost a trillion dollars in trade surplus, it has a major issue investing its dollar revenue. Previously, the Chinese government was the biggest buyer of US Treasuries, but for a while now, China has been selling down its position.

From a peak of more than US$1 trillion, China’s holding of US Treasuries has now dropped to just US$731bil – the lowest since December 2008.

China’s share of foreign holdings of US Treasuries has declined to its lowest in 22 years, at just 8% as at the end of July 2025, while Japan held just 12.6% of total foreign holdings of US Treasuries.

Investors’ perception of the US dollar being a safe-haven currency is now seen as risky, as when US Treasury yields fall, the dollar weakens even more due to the reduced yield spread between US Treasuries and the rest of the world.

Headwinds

Dollar weakness comes from multiple sources, including the US government shutdown as well as the US debt level, which has now surpassed the US$38 trillion mark and is still rising.

Other factors include the reduced usage of the dollar in international trade, while Trump’s tariffs on the rest of the world, especially on India and China, have also pushed the two most populous countries in the world to look elsewhere when trading with other nations outside the United States.

With another rate cut of 25 basis points looming after the latest rate cut on Wednesday, US Treasuries are less attractive to investors in terms of yield perspective.

However, US Treasuries could still generate a decent total performance return, as when yields drop, bond prices will rise due to the inverse relationship between yield and price.

Debt and money

In the world of debt, money, and currency, we do not naturally think of holding government debt papers, especially one that is well accepted as the reserve currency of the world, as risky.

Rating agencies typically only look at the creditworthiness of a sovereign paper, but not the potential loss that may occur from a devalued or weakening currency.

In the case when there is too much sovereign debt to the extent that there is an insufficient amount of money to service the debt, there will be a dire need for a reset button, eventually.

To service this debt, a central bank that is able to print money may do so, but the risks of currency devaluation will increase.

For countries that do not have the ability to print money, they would either devalue the currency or default on their debt obligations.

For foreign holders of sovereign debt papers, debt and currency are the same thing.

Hence, if an investor dislikes the currency, the sovereign debt papers are unattractive due to the fear of devaluation of the currency.

Similarly, if an investor dislikes the sovereign debt papers, the underlying currency in which the debt papers are quoted cannot be an attractive proposition, even after considering the relative yield on the sovereign papers.

A point well explained by Ray Dalio in his book “How Countries Go Broke: The Big Cycle”.

Hence, for sovereign debt holders, the end effect of spiralling debt levels is either a currency devaluation or a default.

Either way, debt holders will lose out, and hence the real risk for sovereign debt holders is the risk of the debt papers losing their value, and not just the attractiveness of the yield that they carry or the credit rating.

This scenario is playing out among asset owners and central banks, with the view that gold holds better value than US Treasuries.

Even the weakness of the greenback will see gold prices appreciating to offset the loss due to the base currency in which gold is quoted.

At the same time, there is also renewed fear that the United States may wipe out its debt by converting it into stablecoins or cryptocurrencies and reset its financial debt obligations in the blink of an eye.

How the United States will do it remains to be seen, but it brings into question the creditworthiness of US debt papers and, to a larger extent, the greenback.

With tether, the stablecoin, holding US$135bil of US Treasuries and making it the 17th largest holder of US Treasuries, could this be the exit plan for US debt, eventually? Or would the United States use bitcoin to wipe out its debt obligations?

BRICS

The Brazil-Russia-India-China-South Africa (BRICS) bloc is beginning to gain traction despite warnings from Trump that any move to marginalise the usage of the dollar in international trade will be met with severe punishment in the form of additional tariffs.

There is nothing that the US administration could do to prevent BRICS members or associated members from trading among themselves in their respective currencies.

In fact, BRICS, which had four founding members before the inclusion of South Africa, now has 11 members and 10 other partner countries.

In total, BRICS now represents one-third of the global economy, a quarter of world trade, and almost half of the world’s population.

Hence, it is no surprise that the rest of the world is more comfortable trading in their own currencies rather than using the US dollar as the reference currency.

In conclusion, the confluence of factors explains why the dollar is weaker and will continue to weaken in the years ahead due to US debt and deficit issues, as well as the loss of confidence in the greenback as a safe-haven currency.

One thing is for sure: with many factors not in favour of the US dollar, it is not hard to predict that we may be witnessing one of the greatest financial tectonic shifts, which may result in an earthquake measuring high on the Richter scale and with unending aftershocks that could alter how we perceive currencies, debts and assets.

No wonder gold is soaring!