Dollar to Cut Rates, Yuan Soars, Gold Spikes

Recently, global asset markets have been highly volatile, especially with the sharp appreciation of the Chinese yuan and the skyrocketing price of gold, which has caused a lot of anxiety. However, the reasons are not complicated; it's just that many people overthink them.

Many interpretations we see only add to the confusion, with some even suggesting that a major storm is coming. Will there really be a grand capital orgy in 2024? Today, we will tell you all the answers.

News of the skyrocketing gold prices is more prevalent, with international spot gold prices breaking historical highs, surpassing $2,180 per ounce on Monday.

The price of gold jewelry at major domestic brands is even higher, almost all breaking through the 660 yuan/gram threshold.

What exactly is happening behind the scenes? In fact, the situation is not complicated; it's still the fault of the US dollar's interest rate hikes.

Although the Federal Reserve gritted its teeth and insisted on not lowering interest rates, the market still has great expectations for a US dollar rate cut, and it seems that global investors are all waiting for a feast of investment orgy.

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If many people have this expectation, then the sharp appreciation of the Chinese yuan and the skyrocketing gold prices are well explained.

Some say that this round of US dollar interest rate hikes is very fierce, and the scale of funds released by the rate cut will also be unprecedented.

This statement is not an exaggeration but is based on evidence. So, if the US dollar rapidly lowers interest rates, how large will the scale of released funds be?

Experts say that due to the fierce nature of this round of US dollar interest rate hikes, the scale of global capital flowing back to the United States has already exceeded 5 trillion US dollars.The scale of U.S. debt has rapidly grown from $23 trillion at the beginning of 2020 to the current $34 trillion, an increase of $11 trillion.

At the same time, from the beginning of 2020 to before the U.S. dollar interest rate hike in March 2022, the Federal Reserve printed more than $8 trillion.

In the history of the United States, there has never been a time when such a large scale of U.S. dollars were hoarded.

In addition, according to convention, the Federal Reserve will add leverage when lowering interest rates, so the scale of funds released at that time will exceed $8 trillion, or even $10 trillion.

The scale of U.S. money printing in 2020 has already caused the U.S. stock market to soar and inflation to soar. The Federal Reserve has raised interest rates for two years, but it has not completely eliminated the serious negative effects.

At this time, if the U.S. dollar lowers interest rates, such a large scale of U.S. dollars flooding the world is likely to cause global asset prices to soar and inflation to make a comeback.

Therefore, the Federal Reserve has to be very cautious and dare not easily lower interest rates. Especially if the interest rate cut is too aggressive and leads to a collapse of the U.S. stock market, Federal Reserve Chairman Powell will become a historical sinner.

However, will this really happen in 2024?

We must not forget that overly optimistic expectations are often the beginning of investment tragedies, so seeing through the truth is the key.

A few days ago, Federal Reserve Chairman Powell had to make a commitment at the U.S. Congress hearing under the full pressure of the members: "It is appropriate to lower interest rates at some point this year, but there is no specific plan at present."However, if you delve deeper, you will find that this promise is too much of a specious argument; Powell's words are almost as good as not saying anything at all, more like a language to appease the politicians in Congress.

The extremely cautious attitude of the Federal Reserve also confirms one thing: they will not and dare not easily lower interest rates, and even if they do, the initial reduction will not be significant, but rather a cautious test of the market's reaction.

This approach to interest rate cuts is in line with the multiple predictions made by Goldman Sachs, known for its conservatism. As a sharp tool in the hands of American capitalists, does Goldman Sachs know some inside information in advance?

This interest rate reduction pattern will be different from any in the history of the Federal Reserve, as they have always been "raising rates like climbing stairs, and lowering rates like taking an elevator." Some say this is to coordinate with the capitalists to act quickly and harvest the world.

Whether or not it is to harvest the world, this time the Federal Reserve has bitten off more than it can chew.

Among Chinese economists, Tan Yaling, an independent economist at the China Foreign Exchange Investment Research Institute, is the most cautious about the expectation of the dollar's interest rate cut.

In her many predictions, she has always insisted that as long as the U.S. economy can still hold on, the Federal Reserve lacks the pressure to lower interest rates and will not easily do so, and may even raise them again.

Overall, the expectation of the Federal Reserve's interest rate cut in 2024 is not optimistic, at least not until the second half of the year, and even if it does, the reduction will not be significant, but more likely a gradual and slow decline.

Undoubtedly, the Federal Reserve would rather have a worse effect on the dollar's harvest than to ensure safety and avoid becoming a sinner in history.

Therefore, the so-called grand capital carnival for global investors may not be a sure thing. The current investment environment is still more conservative and safer.