Why is the dollar strengthening while gold is weakening?

War broke out, and gold prices plummeted, failing to become a safe-haven asset.

Some people thought that with such high dollar interest rates, everyone was saying the dollar was going to collapse, but the dollar is now strengthening. Others said gold is a hero in troubled times, but gold prices fell.

What really happened behind the scenes?

I. What is money?

In most people's eyes, what is money? Money is a certificate for buying things. If I have money, I can buy meat to eat, buy a car to drive, and buy a house to live in.

If you think that way, you haven't even entered the realm of monetary theory. The most fundamental attribute of money is that it is a medium of exchange, and also a tool for coping with uncertainty. The only logical starting point for why we carry cash in our pockets and keep balances in our bank accounts is that we don't know what the future holds. Holding money is essentially buying insurance; it's buying the option to quickly change our lifestyle at any time in the future. People's demand for hoarding money is essentially a fear of future uncertainty. Understanding this will help you understand contemporary China. People say they're not consuming because Chinese people have suddenly become stingy? Is it because everyone is scrambling to make money? No. It's because people's "expectations" have changed. When people doubt the certainty of the future, when they feel that future risks are increasing, the most rational behavior is not to buy that long-desired piece of clothing, nor to buy a new car, but to liquidate assets and hold onto them tightly. This isn't because they lack money, but because their expectations are unstable. The contraction in consumption is actually a reflection of people frantically buying a sense of security. A person's consumption decisions depend on their judgment of marginal utility. Simply put, it's about whether it's more worthwhile to spend 100 yuan now on pork ribs or to keep it to prepare for the risk of unemployment next year. Why aren't Chinese people consuming? Because our demands for compensation for future uncertainty have increased. In the past, we expected wages to rise next year, expected housing prices to rise, and expected that as long as we worked hard, we could live a better life. Back then, the cash we held had very little value as a hedge against uncertainty. Therefore, we dared to spend money and dared to borrow. But now, expectations have changed. People have found that the original path to promotion and salary increases has ended, the original myth of asset appreciation has been shattered, and the original expectations for social security need to be reassessed. At this point, everyone is unconsciously putting this theory into practice, increasing their cash holdings. This means expectations haven't recovered yet. We need to understand that consumption isn't stimulated; it's a byproduct of confidence. When you feel the future is certain and controllable, you don't need anyone to teach you; you'll consume on your own. If institutional and environmental uncertainties aren't eliminated, no matter how much stimulus is applied, people will still tend to hold onto their money and wait. This is why simply lowering interest rates or issuing consumption vouchers often doesn't have the desired effect. Because these measures affect the quantity of money, while what truly matters is people's perception of money and future certainty. II. Why is everyone selling everything and embracing cash? Why has the US dollar been so strong lately? Logically, with the US printing so much money and its national debt so high, the dollar should be depreciating. Why are people rushing to buy dollars when global asset prices become unstable? Asset price fluctuations are essentially a vote between people and currencies. When everyone believes the future is bright, all businesses will be profitable, and all assets will appreciate, people will throw their cash into stocks, real estate, and equipment. At this time, currency depreciates, and asset prices soar. However, when global political situations are turbulent and war breaks out, the alarm bells of uncertainty ring in everyone's minds. At this time, people are not thinking about how to make more money, but how to avoid losses. Imagine, if you had a lot of stocks, real estate, or even gold, which one could be immediately converted into the resources you need when you urgently need to deal with an emergency? It's still the US dollar. No matter how much we say the dollar system is doomed, in the current financial system, the US dollar remains the most liquid form of cash. When global asset prices are expected to be unstable and people feel panicked, a large-scale asset sell-off will occur. People sell stocks, bonds, and even gold at times, to acquire that safest and most liquid instrument. Therefore, the strengthening of the US dollar is not necessarily due to the strength of the US economy, nor does it guarantee the future stability of the dollar's status. Rather, it's because, currently, apart from the dollar, people cannot find a more reassuring safe haven from uncertainty. The demand for currency surges during crises. This demand is not for consumption, but for holding. Gold and the US dollar actually represent two completely different logics of trust. Holding US dollars indicates trust in the existing global trading system. You believe that with US dollars, you can buy things anywhere in the world. Holding gold, on the other hand, indicates a lack of trust in the system itself. The current logic is this: In the short term, due to panic, people need liquidity, so they sell assets for US dollars, causing the dollar to strengthen and occasionally putting pressure on gold prices. However, in the long run, it's becoming clear that the foundation of this dollar system, which reaps huge profits from the world, is crumbling. The US can freeze Russia's dollar assets and wield the big stick of sanctions at will. This has created a profound sense of crisis for many central banks: what if one day my dollars become unusable? When the credibility of a currency is questioned, people seek out indestructible currencies. Gold, that hardest currency, needs no government backing, no credit guarantee, and has existed for thousands of years. Holding gold reserves is precisely a necessity for central banks seeking safe haven. The current fluctuations in gold prices are actually a result of a struggle between two forces. One force is the demand for safe-haven assets, meaning people want to exchange their gold for US dollars for short-term protection. The other force is the demand for decentralization, which is the strategic reserves held by central banks to prevent the collapse of the dollar system. Central banks are increasing their gold reserves and decreasing their dollar reserves not because gold earns interest, but because gold is their last resort. When the fiat currency system collapses, gold is the only ticket to entry. The sharp drop in BTC also illustrates that BTC has not yet become a currency. It is currently still an asset, not yet a tool to enhance people's ability to cope with uncertainty.