People all over the world have been shocked by the recent rise in gold prices, especially the Chinese market.
Commodities also surged along with gold.
Not to mention Bitcoin, which has been skyrocketing since the Chinese New Year.
But for a long time before, these assets showed a negative correlation with the US dollar cycle, namely:
When the US dollar enters a strong cycle, the prices of these assets weaken.
When the US dollar enters a weak cycle, the prices of these assets will strengthen.
But now the situation is very interesting:
The US dollar index is strong and prices of these asset classes are also strengthening.
These situations can only mean one thing:
As a major asset class, no longer trust the US dollar.
Investors believe that the strength of the US dollar is only superficial and its foundation has been shaken.
Otherwise, until the US dollar takes real measures to stabilize its foundation, there is no possibility that the price of assets will fall.
Here the director would like to specifically mention China’s assets and currency.
Now the RMB and gold are in a very delicate relationship.
If the RMB exchange rate rises, the price of gold will fall.
If the RMB exchange rate falls, the price of gold will rise.
The key point here is that the exchange rate of the RMB refers to the exchange rate between the RMB and the US dollar.
It can be seen that in the past two years, the RMB has been depreciating against the US dollar, even falling to 7.35 at its highest.
From China's perspective, the depreciation of the RMB has its benefits, and it is beneficial to export trade, attracting foreign investment and other aspects.
But the problem is that the depreciation of the RMB will lead to a decline in the purchasing power of the domestic currency, which will in turn cause the price of gold to rise. People will choose gold for value preservation rather than continue to hold RMB.
When domestic people start to allocate gold, it also means that the RMB is no longer strong.
This is also the reason why the actual domestic gold price is higher than the guidance price mentioned in the screenshot above.
When people stop holding RMB and start investing in gold,
This further exacerbates the imbalance in the dollar-gold-RMB link.
Because gold is denominated in US dollars, the price of gold is the price of US dollars.
The central bank is now caught in a dilemma.
On the one hand, the price of gold cannot be allowed to be too high, otherwise the RMB will become unstable.
On the other hand, the RMB must be stabilized and depreciate in a steady and orderly manner.
A rumor told the director that last year a certain department was selling gold to stabilize the price of gold, while at the same time buying gold to increase its currency reserves.
As for everyone reading this article, don’t be bothered by this - because we all hold cryptocurrencies, and we all have a bright future.
In the next article, the director plans to write about the difference between virtual assets and physical assets, as well as the pitfalls encountered over the years. You can like and leave a message to urge for an update. The more people you like, the faster the update will be.
Thanks.