EB Securities: A Shift in Gold and the US Dollar

EB SECURITIES released a research report stating that since November 2024, with the strengthening of the US dollar index, the price of gold has been under pressure in a phased manner. However, in the medium to long term, as the international monetary system fluctuates, the gold price has moved away from an independent trend, and the US dollar credit has become the main factor in determining the price of gold. The report focuses on analyzing the relationship between the US dollar and gold price movements, as well as the possible evolution of US dollar credit in the Trump 2.0 era. The main points of EB SECURITIES are as follows: After Trump's successful election, his "America First" policy pushed up the US dollar index, leading to a decline in the price of gold. However, from a medium to long-term perspective, gold and the US dollar have shown a "divergence" trend, and the movement of the US dollar index does not have a decisive impact on the price of gold. In the process of global economic multipolarization and de-globalization, the dominant position of the US dollar in the international monetary system is beginning to weaken, and gold is gradually becoming independent of the US dollar system, becoming a pricing "anchor" in times of uncertainty. US dollar and gold: From "anchored" to "independent" Looking back at the relationship between the US dollar and gold, it has gone through three stages of evolution: 1) US dollar anchored to gold: The United States accumulated a large amount of gold reserves during two world wars and, with the establishment of the Bretton Woods system, successfully anchored gold and entered the international monetary system. 2) US dollar decoupled from gold: Starting in the 1960s, the continuous expansion of US external debt triggered multiple US dollar crises, and after the collapse of the Bretton Woods system, the US dollar successfully freed itself from the constraints of gold and began to shape US dollar hegemony. 3) Gold independent of the US dollar: With the deepening trend of de-globalization and de-financialization, the foundation of the US dollar hegemony is being undermined, and emerging countries are embracing gold, leading gold to operate independently of the US dollar system. Can the Trump 2.0 era end the gold bull market? The key lies in whether the US can reshape its credit, resolve the issue of "twin deficits," and overcome its fiscal challenges. Considering the policy effects of the Reagan era, EB SECURITIES believes that, on the one hand, it is not realistic to rely on trade disputes and exchange rate adjustments to solve the problem of massive trade deficits. The root causes of the trade deficit are the low savings rate in the US and the US dollar serving as the world's currency. Reducing the trade deficit is just the pretext for a trade war, which fundamentally hinders the upgrading of China's manufacturing industry to seize the opportunity of the fourth industrial revolution. On the other hand, the US has limited space to cut fiscal spending, facing the dilemma of continuously increasing rigid expenditures, and the effectiveness of imposing tariffs to offset tax cuts is questionable. In the Trump 2.0 era, if it wants to successfully reduce the fiscal deficit and achieve budget balance, it will face significant obstacles. A more feasible way to overcome fiscal challenges is to increase labor productivity, drive growth in fiscal revenue, and resolve the debt crisis. Otherwise, the US is likely to continue down the path of debt monetization. Historically, from 1993 to 2000, with the arrival of the information revolution, the increase in US labor productivity and fiscal revenue growth resolved the issue of the US fiscal deficit. Currently, we are at a crucial period of a new round of technological revolution and industrial transformation. If the US regains its lead in the fourth industrial revolution, US dollar hegemony will be consolidated again, and the gold bull market will end. However, this time, with Chinese manufacturing deeply integrated into the global supply chain, it may be difficult to repeat history. The future competition between China and the US in the industrial sector will greatly determine the long-term trends of the US dollar and gold. Risk warning: Unforeseen changes in international geopolitical situations; Implementation of Trump's policies exceeding expectations.