"Anti-dollar" storm sweeps the market, is gold preparing for a new round of attacks?

One of the three major credit rating agencies, Moody's, has downgraded the credit rating of the US government from the highest rating of Aaa to Aa1. This means that the US sovereign debt has been removed from the "highest credit rating" category by the three major rating agencies, and gold has once again become the preferred "safe haven" for investors. Steve Sosnick, Chief Strategist at top US securities firm Interactive Brokers, recently stated in an interview that gold is not only a crucial crisis hedge tool for US investors, but also the core "anti-dollar" asset recognized by the global financial markets. Although the US dollar index has rebounded slightly as tensions between China and the US ease, more and more Wall Street investment institutions are expressing their belief that this rebound is temporary. Many are emphasizing that a potentially long "dollar bear market" has just begun, with the trigger being the Trump administration's chaotic and disruptive "economic transformation action" targeting the global trade system. At the same time, as the US dollar may enter a prolonged bear market, major Wall Street financial giants, led by Goldman Sachs, are generally bullish on the rise in gold prices. Following Moody's downgrade of the US rating, the price of gold rose on Monday after experiencing its largest weekly decline since November, and is now increasingly seen as the "preferred alternative" for dollar-denominated investments in the expectation of more investors. "In many cases, I think gold is not so much a crisis hedge tool - it is indeed a crisis hedge if you live in a country that cannot repay its sovereign debt with its currency - but rather in the US market, it is more like an asset with an 'anti-dollar' nature," Sosnick said in a media interview. He further emphasized that the design of the global economic system favors those holding tangible assets such as real estate and stocks, including gold, as these tangible assets can withstand the effects of gradual currency devaluation over time. He explained that moderate inflation will erode the purchasing power of sovereign currencies over time, making it crucial to own physical or productive assets like gold to preserve wealth. "The entire system is designed for investors who hold so-called 'real assets,'" he pointed out, underscoring the strategic advantage of holding assets with intrinsic value in the interview. He described the current global economic design as fundamentally based on a debt model, where borrowing is often used to purchase tangible assets. Sosnick also pointed out in the interview that this relationship between debt and assets explains why the market reacts strongly to Federal Reserve interest rate decisions. "We essentially have an economy based on debt, and that debt is being used to purchase assets in the real world," he directly linked Fed monetary policy with asset valuations and financial market investment strategies. Regarding global stock markets, including US stocks, Sosnick believes that in a moderate inflation environment, equity assets like stocks can still perform well, "because you are buying shares in assets with actual productivity." The "little spring" for the US dollar cannot stop the long "bear market" Since the beginning of this year, Wall Street investment institutions and forex traders have continued to be bearish on the US dollar. Strategists from J.P. Morgan and Deutsche Bank have stated that the dollar will continue to weaken, and forex options traders are currently the most bearish on the dollar in five years. Despite the temporary boost to the US dollar index last week due to easing tensions between China and the US, investors are generally cautious about holding dollars again. Many hedge funds believe that a potential "dollar bear market" that may last for several years has just begun, with the trigger being the chaotic and disruptive "US economic transformation action" by the Trump administration targeting the global trade system. Especially, the Trump administration's erratic tariff measures have caused significant upheaval in the financial markets, shaking investors' confidence in dollar assets irreversibly, leading to the gradual collapse of the "US exceptionalism" narrative. Over the past decade, the "US exceptionalism" narrative has swept the world, with US market investors enjoying the best returns globally. However, the current narrative of "US exceptionalism" is showing significant cracks, with the Trump administration's recent launch or proposed radical tariff policies causing increasing concerns among investors about the risk of the US economy falling into "stagflation" or even "deep recession". This is the core logic behind the continuous weakening of dollar assets in the recent period. In early April, the Trump administration launched tariffs targeting all countries globally and tariffs as high as 25% on the automotive industry, sending all dollar assets into a free fall. The narrative of "US exceptionalism" is gradually collapsing, and shortly afterwards, Trump's threat to dismiss Powell and undermine the independence of the Federal Reserve significantly reduced global confidence in holding dollar assets. In addition, most investors bet on the trend of inflation coming back due to Trump's aggressive tariff policies, which may force US consumers, who have been struggling with high inflation in recent years, to further cut their expenses. The collapse of the "US exceptionalism" narrative is intensifying. The bet on the dollar's decline in the options market for the next year is currently at its highest level since 2020. These long-term options are usually operated by fund managers rather than short-term speculators, which have strengthened the view that people are re-evaluating their exposure to the dollar more broadly. Kamakshya Trivedi, Global Head of Currencies at Goldman Sachs, said this week: "US exceptionalism is gradually being eroded, and these measures will last longer." Wall Street still dreams of a "gold bull market curve" Against the backdrop of continued decline in gold prices and outflows from gold-related ETFs, the Goldman Sachs precious metals team released its latest report this week, maintaining a forecast target of $3,700 per ounce for gold by the end of 2025 and $4,000 per ounce by mid-2026. The Goldman Sachs precious metals strategy team emphasized that in the event of a substantial global economic recession, accelerated inflows of ETF funds related to gold could push the price of gold to around $3,880 per ounce by the end of the year. Additionally, in extreme risk scenarios - such as increased concerns about the independence of the Federal Reserve or changes in US asset reserve policies - the spot price of gold could climb to $4,500 per ounce by the end of 2025.$4,500 per ounce.Goldman Sachs strategists pointed out that although the progress of global trade agreements and reduced risks of recession have decreased the extreme likelihood of gold prices surpassing benchmark forecasts by 2025, current speculative positions are at low levels, providing investors with a favorable opportunity to establish long gold positions, thus reaffirming the trading logic of going long on gold. A survey conducted by Bank of America from May 2 to 8 showed that investors' allocation to the US dollar has dropped to a new low in nineteen years, with 57% of investors believing the dollar is overvalued. At the same time, the survey by Bank of America showed that "long gold" has become the most crowded trade in the global financial markets for two consecutive months, with 58% of investors considering it the most crowded trade currently, far surpassing the second-ranked "long US tech giants" (22%). Bank of America strategist Hartnett, known as "Wall Street's most accurate strategist," has repeatedly mentioned the "multi-asset allocation" strategy. Since the pandemic era, this strategist who has accurately predicted the timeline of the peak of the US stock market has repeatedly urged investors to allocate to international stock markets and go long on gold. The fact has proven that his "BIG strategy" - holding long-term US bonds, international stocks excluding the US, and gold (Bonds, International, Gold) by 2025, can indeed bring investors a much stronger overall investment return than the "Trump trade" this year.