Weakening of the US Dollar: The 'Catalyst' for Gold's Rise
In Gold We Trust!
In September, gold prices once again became a global focus as spot gold consecutively broke through key resistance levels, surging past USD 3,600 per ounce. Domestic gold jewelry prices also soared, nearing CNY 1,070 per gram. Is this surge in the gold market merely short-term volatility, or is it the prelude to a major era of change? The global investor community's embrace of gold—whether driven by a rational response to the interest rate cut cycle and the weakening dollar or reflecting deep distrust in the dollar-based credit system—is a matter worth exploring. Let us explain further:
The Decade-Long Gold Bull Market: From Prediction to Reality – A Super Cycle
The gold market has performed impressively in 2024. In dollar terms, gold rose 27.2% for the year; in euro terms, the increase was even higher at 35.6%. Entering 2025, this upward trend has continued, with spot gold climbing from USD 2,657 per ounce at the beginning of the year to surpass the USD 3,600 mark as of September 9, gaining nearly USD 1,000 per ounce and registering an annual rise of nearly 40%, showcasing a robust bull market. Especially in the past half-month, propelled by expectations of Federal Reserve rate cuts and other factors, international gold prices have risen continuously, repeatedly hitting new historical highs. More notably, gold has reached all-time highs across all fiat currency valuation systems—a phenomenon that is not coincidental but indicative of a long-term trend.
As early as 2020, the Glodon Research Institute presciently proposed the concept of a 'golden decade,' which is now gradually becoming a reality. In numerous annual and mid-year strategy sessions, we have consistently emphasized the 'Big Long' concept, guiding investors toward recognizing that a new long-term gold bull market is taking shape. Investors should decisively allocate a significant portion of their portfolios to gold-related assets to capitalize on this wealth-enhancing opportunity.
From a price potential perspective, Incrementum AG’s projections are particularly noteworthy: By the end of this decade, under baseline scenarios, gold prices are expected to reach USD 4,800 per ounce, while stronger inflation could push prices to as high as USD 8,900 per ounce. This implies that the current price of USD 3,600 may only represent the starting point of a 'super cycle' for gold.
Reviewing history, gold bull markets often exhibit an 'acceleration in the second half' characteristic. During the 1970s bull market, gold prices surged 452% in the first five years and then another 162% in the subsequent five years. In the 2000s bull market, prices rose 52% in the first five years and skyrocketed 150% in the following five years. Currently, we are midway through this bull market, and historical patterns suggest substantial room for further growth.
The core logic supporting this super cycle lies in the 'dual attributes' of gold being redefined. On one hand, as a safe-haven asset, escalating geopolitical instability and economic uncertainty globally have underscored gold's role as a 'safety net.' On the other hand, as an inflation hedge, against the backdrop of lingering effects from global central bank easing policies and high debt levels, gold has become a critical choice to counter currency depreciation. This dual driver of 'safe haven + inflation hedge' has made gold stand out among various asset classes.
The actions of global central banks provide further insight into this trend. Central banks worldwide have been net purchasers of over 1,000 tons of gold annually for three consecutive years, reaching a historic peak of 1,086 tons in 2024. Poland, India, and China were the main buyers, with Poland’s central bank governor explicitly stating the goal of increasing gold’s share in total reserves to 20%; it currently stands at 16.9%. As of August 2025, China’s central bank reported gold reserves of 74.02 million ounces, up by 60,000 ounces from the previous month, marking ten consecutive months of increases and demonstrating long-term confidence in gold assets. From a reserve allocation perspective, the proportion of global central bank gold reserves in total reserves has increased from approximately 9% in 2016 to 18.2% in 2024, indicating gold's gradual return to a core position within the monetary system. This 're-monetization' trend provides solid support for gold prices.
The Logic of Gold in a Changing Global Landscape: A Triple Driver of Debt, Inflation, and Geopolitics
Gold's robust performance is not an isolated market phenomenon but rather a microcosm of profound transformations in the global economic and political landscape. The 'triple奏' of debt crises, persistent inflation, and geopolitical competition has collectively driven gold’s strength.
1. Debt Dilemma: Crisis Spreading from the Periphery to the Core
Global debt issues are no longer exclusive challenges for emerging markets but are profoundly impacting major industrialized nations such as the US, Japan, France, and Italy. The situation in the United States is particularly dire— in fiscal year 2024, the US government’s interest payments amounted to approximately USD 881 billion, surpassing its military expenditure of USD 855 billion for the first time, breaching the 'Ferguson Limit' proposed by historian Niall Ferguson. This limit is considered a harbinger of great power decline; historically, the fall of empires such as Habsburg Spain and the Kingdom of France was marked by interest expenditures exceeding defense spending.
Data shows that US federal debt has exceeded USD 36 trillion, accounting for over 120% of GDP; Japan’s government debt-to-GDP ratio is as high as 260%; meanwhile, France and Italy in the Eurozone have debt ratios of 113% and 135%, respectively. Such high debt levels have locked governments into a vicious cycle of 'borrowing new to repay old.' In 2024, the US needs to refinance more than USD 7 trillion in debt, representing 25% of its total debt. Any loss of market confidence could trigger a chain reaction. As a 'debt-free asset,' gold has become the optimal choice for hedging against debt risks, which is also the core reason central banks continue to increase their holdings.
2. Stubborn Inflation: Persistent Price Pressures and Gold’s Hedging Value
Despite consecutive interest rate hikes by global central banks, inflationary pressures have not fully subsided. In 2024, the US core CPI stands at 3.2%, core PCE at 2.8%, and the Eurozone core HICP at 2.7%, all stubbornly above the 2% target. More alarmingly, inflation volatility has significantly increased, indicating that the risk of a 'second wave of inflation' has not been eliminated.
The correlation between gold and inflation has long been validated by history. During the 1970s, when US inflation exceeded 10%, gold surged by 35% annually; during the global inflation spike of 2021-2022, gold also reached record highs. Currently, factors such as the wage-price spiral, geopolitical disruptions to supply chains, and cost increases driven by energy transition could all push inflation higher. Against this backdrop, gold, as a 'natural inflation hedge,' has become an essential option for investors seeking to protect against purchasing power erosion.
3. Geopolitical Rivalry: The Role of Gold in Restructuring the Global Order
The global geopolitical landscape is undergoing 'profound changes unseen in a century.' Following Donald Trump’s return to the US presidency, his policy orientation is profoundly influencing the global economic order. Escalation of tariff policies (with the US average tariff rising to nearly 30%), pressure on NATO allies, and trade frictions with China are all exacerbating uncertainties in the global economy. Meanwhile, the BRICS bloc continues to expand, now encompassing 11 member countries, representing 37% of global GDP and 45% of the world’s population, accelerating the process of de-dollarization.
This reshaping of the 'West retreats, East rises' pattern has made gold's 'neutral attribute' increasingly precious. As fiat currencies such as the US dollar and euro are being 'weaponized' due to political games (e.g., freezing Russia’s foreign exchange reserves), gold, as a 'borderless asset,' has become a core choice for diversifying central bank reserves. In 2024, emerging market central banks accounted for 80% of global gold purchases, and this trend is intensifying.
The Asset Allocation Revolution: How Gold is Reshaping Investment Portfolios?
In today's rapidly changing global economic environment, the traditional 60/40 investment portfolio model (60% stocks + 40% bonds) is gradually losing effectiveness. From 2022 to 2024, both US equities and US bonds fell simultaneously, breaking the traditional understanding of 'negative correlation between stocks and bonds.' Investors urgently need a new asset allocation framework, and the rise of gold has provided a critical pivot for this transformation.
1. The Failure of Traditional Models and Gold's Role as a 'New Anchor'
Over the past four decades, the 60/40 portfolio worked effectively mainly because of bonds’ 'hedging function'—when the economy weakened, central banks cut interest rates, boosting bond prices to offset stock declines. However, today high inflation forces central banks to maintain high interest rates even during economic weakness, causing bonds to lose their hedging ability. In 2022, the S&P 500 fell by 18%, and the US 10-year Treasury dropped by 17%; simultaneous declines in stocks and bonds dealt a 'double blow' to the traditional portfolio.
Gold, on the other hand, demonstrated unique 'counter-cyclical attributes.' When US equities plummeted in 2022, gold rose by 0.4%; during market turbulence in 2024, gold surged by 27%, becoming a 'stabilizer' in asset portfolios. More importantly, gold’s correlation with stocks and bonds has continued to decline; currently, its correlation with the S&P 500 is only 0.1, and with US Treasuries, it is -0.2, making it an ideal choice for risk diversification.
2. The New 60/40 Portfolio: A Gold-Dominated Diversified Allocation
In response to these changes, some forward-thinking institutions have proposed a 'new 60/40 investment portfolio,' consisting of: 45% stocks, 15% bonds, 15% safe-haven gold, 10% performance-oriented gold (silver and mining stocks), 10% commodities, and 5% Bitcoin. Backtesting data shows that from May 2024 to April 2025, this portfolio yielded a return of 12.3%, significantly higher than the 7.8% return of the traditional 60/40 portfolio, with lower volatility.
The core logic of this portfolio is to elevate gold from a 'peripheral asset' to a 'core allocation.' Among this, 15% 'safe-haven gold' is used to hedge extreme risks, while 10% 'performance-oriented gold' (silver and mining stocks) seeks elastic returns. Silver, as the 'shadow of gold,' combines monetary attributes with industrial demand (in areas like renewable energy and photovoltaics). Historically, silver often outperforms gold in the later stages of a gold bull market. Currently, the gold-to-silver ratio stands at 100, far above the historical median of 62, indicating significant room for a catch-up rally.
Mining stocks represent another 'high-potential opportunity.' In 2024, while gold rose by 27%, the gold mining index increased by only 17%, suggesting clear undervaluation. As gold prices continue to rise, mining companies’ profits will grow 'exponentially'—when gold rises from $2,000 to $3,600 per ounce, mining companies’ gross margins could increase from 30% to over 50%. Currently, the price-to-earnings ratio of mining stocks is only 18x, below the historical average of 22x, offering distinct valuation advantages.
3. The Weakening of the US Dollar: A 'Catalyst' for the Rise of Gold
The 'negative correlation' between the US dollar and gold is a market consensus, while the US dollar is currently facing medium-term downward pressure. The Trump administration’s policies favor a 'weak dollar' to promote exports, which presents an inherent contradiction with the dollar's status as a global reserve currency. From a technical perspective, the US Dollar Index (DXY) has broken below the key support level of 100, and if this trend continues, it may fall to 90 or even lower.
Historical data shows that for every 10% decline in the US Dollar Index, gold rises by an average of 15%. More profoundly, the credibility of the dollar system is being challenged – the share of the dollar in global foreign exchange reserves has dropped from 70% to 58%, and the proportion of oil trade settled in dollars has decreased from 90% to 80%. As the 'hegemonic position' of the dollar loosens, the value of gold as the 'ultimate means of payment' naturally becomes more prominent. In terms of purchasing power, gold’s control over daily commodities continues to rise; for instance, the gold/Munich Oktoberfest beer ratio reached 182 beers per ounce in 2025, far exceeding the 76-year average of 91 beers per ounce, highlighting its value as a store of wealth.
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Positioning Gold: A Practical Guide from Trends to Actions
Facing significant opportunities in the gold market, investors need not only the ability to assess trends but also actionable allocation strategies. Based on market characteristics and asset attributes, the following dimensions can be considered:
1. Core Allocation: Physical Gold and Gold ETFs
2. Flexible Allocation: The 'Double Opportunity' in Silver and Mining Stocks
3. Portfolio Rebalancing: Seizing Cyclical Rhythms
4. Long-Term Perspective: Gold and Era Transformations
Note: The companies mentioned in the article are for case study purposes only and do not constitute any investment recommendations. The market involves risks, and investments should be made with caution. Independent analysis must be conducted prior to making any decisions.
