Behind the falling dollar and rising gold prices

Recently, the US dollar exchange rate continues to decline, gold prices continue to rise, as of April 1, the US dollar against the RMB exchange rate from the January peak of 7.3328 all the way down to 7.2267, gold prices in just three months up nearly 20%, what is the reason behind the US dollar exchange rate decline and gold prices rise? This article will lead the reader to conduct in-depth analysis and exploration.

The financial nature of the dollar and gold is one of the reasons for the recent decline in the dollar's exchange rate. As an international currency, the US dollar is a credit currency issued by the US Federal Reserve Bank and endorsed by the US national credit, which belongs to a financial product. In theory, this means that the dollar itself has no real value and is often priced based on "use value." Gold is different from the US dollar in financial nature, gold belongs to a commodity metal, with the title of "natural currency", as an international universal metal, which provides a solid basic reason for its stable rise in price, making the price of gold easy to rise and not easy to fall. On the contrary, as a commodity currency, the US dollar does not have "real value", which makes the exchange rate price of the US dollar more vulnerable to market fluctuations.

Concerns about the credit worthiness of the United States are an important reason for the dollar's recent decline. According to the Congressional Budget Office, the US fiscal year 2025 deficit will be close to $1.9 trillion. Meanwhile, according to the US Treasury Department, the US debt now stands at $36 trillion. Excessive national debt often leads to a poor balance sheet in the Treasury, and the US fiscal deficit is still high, which causes the market to worry and worry about the ability of the US to pay its debts, and thus bear the dollar. The opposite is true for gold. On the one hand, the price of gold is often the opposite of the fluctuation of the US dollar exchange rate, on the other hand, with the US President Trump's high swing of the "tariff" stick, global capital has produced concerns about the trade situation, as a hedging metal commodity, gold's value preservation properties make international assets have more gold, for itself to find a breathing space for the complicated corporate account amount. Bullish will continue to add "Wangchai" for gold in the background of the original rise.

Global economic uncertainty is one of the factors driving up gold prices. Due to trade tensions and geopolitical conflicts, the current global economic supply chain has been affected, and many governments have lowered economic growth expectations, and the investment market in various countries has generated fear and is committed to seeking a more stable way of asset appreciation. On the one hand, the high leverage effect of the securities market makes capital flee from the stock market and bonds. On the other hand, the hedging role of gold is highlighted at this time, making its stable value-added characteristics stand out from all kinds of investment products.

The tariff war and the Fed's rate cuts have been a big factor in the dollar's decline. Due to Trump's policy on tariffs, the global market has been affected by trade due to tariffs, global trade tensions have reduced the international demand for the US dollar, and the Federal Reserve has opened a new round of interest rate cuts in September 2024, and the market supply and demand balance of the US dollar has changed to a certain extent. On the one hand, the demand for US dollars is reduced due to trade tensions; on the other hand, the Fed's interest rate cut increases the supply of US dollars in the market, which causes the overall upward pressure on the US dollar exchange rate, resulting in the overall decline of the US dollar exchange rate recently.

To sum up, the decline of the US dollar exchange rate and the rise of the gold price are jointly affected by the nature of its commodities, while the global trade tension caused by the US debt credit and tariff war can also have a direct or indirect impact on the US dollar exchange rate and the gold price. In addition, the US dollar exchange rate and the gold price will also react to the Fed's interest rate cut and the flow of funds in the securities market, respectively. Investors should pay attention to all aspects of the factors in the selection, the investment target for prudent evaluation.

In the current volatile global financial market, it is recommended that investors in various countries adjust their expected returns in a timely manner, improve their risk management allocation according to the market, and continue to pay attention to the policies and trends of the international market, so as to achieve good expected results while promoting the steady and orderly development of the financial market.