There’s an old saying among investors: Don’t fight the Fed.
Well, now it’s a whole bunch of “feds,” in the form of national central banks around the world. And they’re migrating toward gold, big time. While ganging up on the dollar, by lightening up on U.S. treasuries.
Over the past decade, the share of global central bank assets devoted to gold has doubled. For the first time in more than 30 years, the value of gold reserves held by central banks around the world now surpass their U.S. treasury holdings. And the trend is continuing: Rising sovereign wealth fund demand for gold has pushed gold prices above $5,000 an ounce. As of this writing, the spot price is hovering right around $5,086 per ounce.
Meanwhile, China's central bank is urging their own members to limit exposure to U.S. treasuries, even as it backs up the truck to buy more gold for their own national reserves. They’ve been net gold buyers for 15 months in a row.
The World Gold Council estimates central banks bought over a thousand tons of gold in 2024, and another 863 tons in 2025… led mostly by developing countries, and pushing global demand for gold to a record 5,002 tons.
Meanwhile, China and India are lightening up on U.S. treasuries.
This tells us something important: These national banks are willing to give up yield in order to own hunks of metal that issue no dividend.
It’s not hard to see why: Congress still has little appetite for reducing the deficit. The latest major piece of tax legislation –– the One Big Beautiful Bill Act (OBBBA) –– actually increased the projected national debt by $3.8 trillion over the next decade, according to the National Tax Foundation. That’s net of any expectations for any stimulus-related economic growth.
A bit of stimulus here and there isn’t a problem. People gotta have jobs. But OBBBA is just the latest in a long string of fiscally damaging bills and monetary policies (quantitative easing, anyone?) that have inexorably driven the buying power of the dollar down more than 95 percent since the Federal Reserve was created specifically to protect it.
That’s ugly.
Central banks and other institutional investors are just acting rationally in the face of economic realities: Treasury rates don’t compensate them adequately for the risk (near certainty) of inflation and further erosion of the dollar.
The fact that both China and India are lightening up on U.S. treasuries also has real economic implications for the U.S.: For many years, the emerging middle class in both nations, compared to their cultural high savings rates, have created a massive flood of capital that they used to buy U.S. treasuries and other U.S. debt. They were the chief underwriters of U.S. spending for most of the last 30 years.
The fact that they are cutting back on treasury exposure means that their capital will become more sparse in the U.S.
This is happening just as U.S. equities reach some of their highest prices in stock market history - especially on an inflation-adjusted basis.
The current S&P 500 p/e ratio is now 30x earnings: Higher than it was on the eve of the Internet Bubble crash in 2000 (It was 28.50 in March of that year).
Don’t fight the Fed. And don’t fight dozens of them around the world.
Hedge your bets. Pick up some gold.
This is my last contribution to this newsletter. But I’ve been covering the capital and risk markets for the last 25 years!
In the coming weeks and months, I plan to share with you all the best ideas about wealth accumulation, preservation, and protection against all variety of hazards, from market volatility, to inflation to taxes.
Please write back to us and let us know what you’d like us to cover!
Very excited to serve all newsletter readers subscribers!
All the best,
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John E.
Wealth Money Catalyst