China, Gold, Treasuries, and the Dollar collide in a story designed to shake confidence. Here’s why it shouldn’t.
KEY TAKEAWAYS
Gold’s recent surge is being driven as much by narrative as by fundamentals. Fear and uncertainty are real, but the story around foreign central bank buying is amplifying emotion beyond the data.
China reducing US Treasury holdings is not a new development. The trend has been in place since 2013 and reflects diversification, not sudden financial panic.
The “sell America” trade thrives during periods of economic anxiety. Rising deficits, a softer dollar, and geopolitical tension create fertile ground for exaggerated conclusions.
The strength of the US dollar is rooted in productivity and innovation, not gold stockpiles. Capital markets, legal frameworks, and adaptability matter more than symbolism.
Gold and alternative assets can hedge fear, but they are not replacements for productive ownership. Equities represent participation in real economic growth over time.
MY HOT TAKES
This headline is less about risk management and more about psychological pressure. It targets public confidence at a moment when financial anxiety is already elevated.
Gold is acting as a proxy for fear, not foresight. When emotion fades, price discovery tends to get violent.
China benefits from weakening confidence in US financial stability regardless of who sits in the White House. This is about perception, not party politics.
Bitcoin evangelism and gold narratives often rhyme because they sell the same anxiety. Different packaging, same emotional pitch.
You don’t hedge uncertainty by abandoning productive systems. You hedge it by owning the engines that adapt when conditions change.
You can quote me: “You don’t replace global financial plumbing with a shiny rock or a clever algorithm.”
Who ya’ gonna’ call? When there is something strange in your neighborhood, you can certainly try and call the Ghostbusters, but if we aren’t talking about spirits, you might want to think carefully about which button you press on your Presidential hotline phone. Ok, I have to admit, I have been vexed by gold. Not necessarily why gold is on such a crazy climb–that certainly has my attention. I am more vexed about the public narrative around why folks are buying it so aggressively. Not the part about fear and uncertainty, but rather foreign central bank buying and their logic, which plays into a certain type of public fear, that may not be warranted. I hinted about it in yesterday’s blogpost/newsletter and also in a few of my more recent posts about gold. This morning, a hot news tape topic on the street is that Chinese financial regulators reportedly “advised” domestic banks to curb purchases of US Treasury Bonds and to reduce existing holdings where concentration is high. According to the reports, the advice was framed as a measure to avoid “concentration risk.” Are you thinking what I am thinking? Not yet? Stick around.
Ok, first of all, why would a foreign central bank in a carefully and tightly controlled country like China make public its communiques with domestic banks? This information was presumably not taken from some sort of public disclosure document or some Freedom of Information Act inquiry. 🤣. Ok, regardless of all that, does the headline make you nervous? Are you questioning the strength of the US Financial system?
Take a step back and think about the recent narrative floating around in the financial mindspace recently. Gold is near record highs, the dollar has been battered down, tensions are flaring, the deficit is rising–these are all part of the so-called, “Sell America” trade.
Let’s begin with gold. It is commonly known that the Chinese central bank has been aggressively buying gold for almost the past year and half. This has played a big part in bidding up the price of gold, but the narrative on why China is buying is, perhaps, playing even a larger role in the rise in price. China claims that it is buying gold to strengthen its own financial situation, making its banking system–its currency–appear to be stronger. Stronger than what? The US Dollar and US banking system. China, and many other countries in China’s sphere of influence have been vocal about their distaste for the US Dollar being the world’s reserve currency. Why? Well, they will tell you that the US has high levels of debt and growing deficits. Risks that the US will not be able to make good on its debt obligations. Further, its fiat currency cannot support the country’s level of indebtedness. Does this narrative make you nervous? Sure it does, and it is designed to!
Let me remind you that China too, has a fiat currency as do all of the largest world economies. Do you think hoarding gold in some basement in Shanghai will make the Yuan safer? If you are a treasurer for a sovereign with lots of money to put aside, are you going to call someone over at the People’s Bank of China for safe keeping? Will you first buy Yuan and buy Chinese Government bonds to anchor your holdings? Would you feel better about it knowing that China has lots of gold stored up? Well, you may want to put some of your money there, but certainly not all of it. But will you avoid buying the US Dollar because you are afraid that the US is going to default on its debt obligations? If real chaos–breaks out in the world, are you expecting that your funds would be safer in China or the US? Think carefully about it. I thought so. Check out this chart and keep reading.
This chart shows Chinese holdings of US Treasuries from 2000 through 2024, and you can clearly see that the levels have been declining since 2013, so this is nothing new. Now if you look at the monthly chart below, you will see that the trend continued to decline through late last year. So, indeed China has been reducing holdings of US obligations for some time–long before the current administration, and long before the current global political climate.
So, is this a reason to worry? And is China’s latest move a political stunt–a manuever–a tactic–in this latest tit-for-tat trade war with China? More importantly, should you sell America? My answer is no.
These things go up and down. They always have. The US dollar has been weaker in the past. It has been THE “problem” before. It has also been THE “solution” before. If you’ve been around long enough to remember the dollar in the mid-80s, the late 90s, the post-GFC years, the pandemic surge, and the recent slide, you already know what I am about to say. The dollar is not a religion. It’s a price. It’s a market. It moves. And it moves for reasons that rarely fit into a neat little narrative that can be squeezed into a chyron (that’s inside TV talk, LOL 😂) at the bottom of a TV screen.
Which brings me back to the headline. China “urging” banks not to buy US Treasuries. It is framed as concentration risk. Ok. Fair. Banks have concentration risk in everything, including their own government’s rules. But step back for a moment and ask yourself why this particular story is suddenly being floated in public. It hits exactly where the United States is most vulnerable in the public psyche right now: in its pocket book. In the cost of living. In the fear that your paycheck buys less, that your savings are quietly eroded, that your retirement math is getting harder, and that the system is somehow rigged against you. That fear is real, but this narrative is being engineered to amplify it.
Let’s call it what it is. China would like to discredit the administration, and frankly, it doesn’t matter which party is in the White House when the broader strategic goal is to weaken the perception of American stability. You don’t have to believe in some cloak-and-dagger conspiracy to understand that geopolitical competitors are always looking for pressure points. In the 1970s it was oil. In the 1980s it was industrial competitiveness. In the 1990s it was trade. Today it’s something far more intimate: trust. Trust in money, trust in institutions, trust in the future. If you can get people to question the dollar, you don’t just dent confidence in currency markets. You dent confidence in… well, American capitalism.
And the timing is not accidental. We are in a moment where a “Sell America” narrative practically writes itself. Gold is ripping higher. The deficit is rising. Tensions are flaring. The dollar has been soft. Rates are a constant anxiety attack. That is a perfect canvas for someone to paint a story that sounds plausible at dinner parties. It is also a perfect canvas for markets to do what they always do when people are emotional: exaggerate.
Now ask the next question. Who else benefits from this narrative?
I’m not going to pass judgment, but I did look up from my work this morning only to see a man of my similar age wearing a t-shirt with the bitcoin symbol under a suit, sitting on mainstream financial media. The sound was off. I don’t know what he was saying. But I’m pretty sure I could write his script for him. It would involve currency debasement, the end of fiat, the death of the dollar, the “math” of scarcity, and the idea that you should buy bitcoin instead of the US dollar because the government can’t help itself. That storyline has been floating around for years, and every time the dollar wobbles and gold moves, it finds oxygen again.
I challenge all of it.
Not because deficits don’t matter. They do. Not because debt doesn’t matter. It does. Not because politics doesn’t matter. It absolutely does. But because the leap from “we have issues” to “the dollar is finished” is a leap across a canyon, and people keep trying to build the bridge with slogans.
The strength of the dollar has less to do with any cache of shiny metal and less to do with any alternative digital currency than people want to admit. The strength of the dollar is tied to something more durable and far harder to counterfeit: the productive capacity of the United States. The potential for ingenuity. The machinery of capitalism. The ability to create new industries, new products, new services, new medicines, new chips, new energy systems, new software, new ideas. A place where “moonshot” has actual meaning–the US did it, actually. The kind of creative productivity that doesn’t just generate wealth, it generates options. And options are what you want in an uncertain world.
If you are going to own a fiat currency, would you rather own one issued by a country whose core export is creativity and innovation, or one issued by a country whose core export is control? Would you rather own one backed by transparent capital markets and a legal system that, while messy and imperfect, has a long track record of enforcing property rights? Or one backed by a system where rules can change on a Tuesday because someone decides they should? You don’t need to turn this into a moral argument. It’s just a risk argument.
And yes, not to mention military might. People roll their eyes when you bring it up, but the world doesn’t run on vibes alone. Safety matters. Stability matters. Sea lanes matter. Alliances matter. Deterrence matters. There is a reason that when the world gets truly unstable, money doesn’t run to Shanghai. It runs to the same place it has run to for generations. The United States. Treasuries. Dollars. The boring stuff that suddenly feels beautiful when everything else is on fire.
That’s why the headlines about China reducing Treasury exposure are not new. My charts 🙃 already show the big picture. Holdings peaked more than a decade ago and have drifted down since. The monthly chart shows the same story in finer detail. If you want to interpret that as a strategic diversification, fine. If you want to interpret it as risk management, fine. If you want to interpret it as geopolitics, also fine. But if you want to interpret it as the end of the US financial system, I’m going to ask you to slow down and take a breath.
Because here is the practical question that cuts through all the noise. If you are looking to buy the safest bond in the whole world, really, what will you buy?
I thought you would say that.
There is a reason that even the loudest voices predicting the demise of the dollar still measure their net worth in dollars. There is a reason that when markets seize up, investors don’t rush to gold bars for settlement. They rush to Treasury bills. There is a reason that global trade still clears through the dollar system, even among countries that complain about it. The dollar is not dominant because the United States is perfect. The dollar is dominant because the alternatives are worse, and because the world needs a deep, liquid, trusted market that can absorb shocks without breaking.
Gold has a role. Bitcoin may have a role. But the role is not what the narrative merchants want it to be. They want it to be a replacement story, a revolution story, an “everything you know is wrong” story. It’s exciting. It sells. It also conveniently ignores that currencies are not just assets. They are networks. They are institutions. They are legal frameworks. They are global plumbing. You don’t replace that with a shiny rock or a clever algorithm just because you are mad about inflation.
So yes, pay attention to the story. The story matters because it shapes sentiment, and sentiment shapes markets. But don’t confuse a story designed to poke your emotions with a structural truth about the world. This is geopolitics playing with your fear. It’s press releases and whispers and narratives designed to land exactly where you feel it most: the price of eggs, the size of your mortgage payment, the value of your portfolio.
And if you want to do something productive with that discomfort, focus where “real” business and real growth exist. Focus on the US equity markets. Not because stocks can’t go down. They can. They do. They will again. But because equities represent ownership in productive enterprises. They represent innovation. They represent adaptation. They represent humans trying to build, sell, solve, and improve. That is the real long-term hedge against uncertainty, not a panic trade into whatever the internet is shouting about this week.
China can play games with headlines. Commentators can sell you apocalypse narratives. Gold can go parabolic and then remind you, violently, that it is still a volatile asset. The dollar can dip and then recover. These things go up and down.
But the American engine, with all its flaws and noise and political theater, still does what it has always done. It creates. It reinvents. It competes. It attracts capital. It absorbs shocks. It keeps moving forward.
So no, you don’t sell America because someone wants you to feel nervous. You don’t sell America because a competitor knows your attention is fragile and your emotions are expensive. You don’t sell America because a narrative is trending.
You sell America when the country stops producing, stops innovating, stops building, stops defending its institutions, and stops believing in its own ability to adapt.
And we are not there. Not even close. Have a nice day. 🙂
YESTERDAY’S MARKETS
Stocks rallied yesterday as positive equity momentum from Dow 50k lit a fire under the tech dip buyers who realized that maybe the selling went a bit far last week. Google wants to sell you 100-year bonds, markets thought–interesting.
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