Since this year, central banks hold more gold than US Treasury bonds for the first time since 1996. This trend is driven by two mechanisms. The first is a new type of US foreign policy: as the US seeks to reshape the world order through escalating international conflicts, gold serves as a safer asset compared to US dollars, especially for foreign central banks. Last week, The Financial Times reported that the Chinese central bank may have purchased up to ten times more gold in recent years than official figures suggest. The second mechanism is the fear of a “debasement” of the US dollar, a scenario in which the United States tolerates a higher level of inflation to deflate its large government debt. This fear grows as long as the US president pressures the Federal Reserve to cut interest rates while inflation remains unstable. In the period after 1945, such monetary debasement accounted for at least half of the reduction in government debt in many Western countries, particularly the United States, the United Kingdom, and France.
