In the old saying in China, it goes: antiques thrive in prosperous times, while gold shines in chaotic times. For those who have been observing the financial markets for years, the current global financial market seems to be staging a seemingly bizarre drama. On one hand, risky assets such as the S&P 500 Index and the Nasdaq Index in the United States are hovering at high levels; on the other hand, the soaring prices of ancient safe-haven precious metals like gold (including silver) have even left the most optimistic gold longs awe-struck.
Traditional economic textbooks would tell people that theoretically, this is impossible. The rise in stock prices signifies optimism about the future, while the surge in gold prices stems from fear of the unknown. However, the reality is that this wave of momentum is not simply market panic; behind it lies the fracturing and disintegration of the old global economic and financial order, a more profound and structural change is happening. In simpler terms, people are witnessing a reset of the global economic and financial order.
Before delving into the root causes, it is necessary to first recognize how fragile the current system is. The Financial Stability Board (FSB), composed of central banks and regulatory authorities of major global economies, issued an unusually stark warning in a letter to the G20 on October 13: asset valuations are severely detached from uncertain economic and geopolitical prospects, and the market may face the risk of disorderly adjustments at any time.
The FSB’s warning translated into layman’s terms is this: despite the high stock prices now, it is very likely a massive bubble with no solid economic growth as a support underneath it. Any slight disturbance could trigger a collapse.
This “disconnect” explains why gold is soaring alongside the stock market. What is driving the rise in stock markets is mainly the massive liquidity released by central banks worldwide in the past five years, as well as market expectations of further interest rate cuts and even a return to quantitative easing by the Federal Reserve, particularly.
However, while investors are enjoying the rise in asset prices brought about by loose monetary policies, they also sense a strong undercurrent of unease. Therefore, they are allocating a portion of their profits to gold, not for speculation but to purchase an “insurance policy” against systemic collapse.
One manifestation of this global order reset is the erosion of trust in the cornerstone of the existing system – fiat currencies. Investors are seeking ways to hedge sovereign risk, namely government debt risk, which was unimaginable decades ago.
Taking US Treasury bonds, a concern for many, as an example, as someone who has observed and analyzed current affairs and economics for a long time objectively, investors, including politicians, must confront the fiscal situation of the US government. The total US national debt has surpassed $37 trillion and continues to grow rapidly.
President Trump has stated that his “One Big Beautiful Bill Act” will reduce the US national debt-to-GDP ratio to 94% over the next decade through cutting wasteful spending and promoting economic growth to restore fiscal sanity.
However, at present, faced with such a colossal debt, there are ultimately only two paths: either painful fiscal austerity, which is challenging in the current political environment of partisan gamesmanship, or continuing to issue government debt and allowing the depreciating dollar to dilute the actual value of the debt. While this approach may achieve short-term objectives, in the long run, it inevitably damages the US dollar’s status as the global reserve currency.
Looking at major countries worldwide, they are all operating in a similar manner. On October 15, the International Monetary Fund (IMF) released its latest Fiscal Monitor report. The report projects that by 2029, the global public debt is expected to exceed 100% of global GDP, and could potentially reach an extreme scenario of 123%, a new high since 1948.
The response from the Chinese Communist Party (CCP) government is the most intense and indicative among governments. The People’s Bank of China has been the world’s largest gold buyer for 11 consecutive months. Behind this move lies a profound sense of insecurity within the CCP regime and fear of the failure of its economic model.
First, it is for external “preparedness”, hoarding hard currency for potential conflicts. Lessons from Russia have shown Chinese decision-makers that if a conflict erupts in the Taiwan Strait, the CCP’s tens of billions of dollars in overseas assets could be frozen. Therefore, discreetly selling US bonds and increasing gold holdings systematically is its strategic preparation for the worst-case scenario. This is no longer mere financial investment but “war reserve supplies” serving its political ambitions.
Secondly, it is for internal “hedging against collapse”, using gold to “endorse” the failed economic model. The CCP believes that what is more terrifying than external threats is the internal disintegration of its once self-proclaimed economic model.
Real estate giants like Evergrande and Country Garden, with their towering debts and unfinished properties of astronomical numbers, have left countless middle-class families in financial ruin. The real estate sector, as the engine of China’s economy over the past two decades, has now stalled and become the biggest threat to trigger a financial crisis.
The “land finance” model dependent on land sales has reached its limits, with local governments burdened by towering debts, many regions effectively bankrupt and surviving only through central government bailouts.
Private enterprise investment sentiment is low, foreign capital is fleeing on a large scale, youth unemployment rates are soaring, and social consumption is extremely weak. When a regime can no longer deliver promises of economic growth to its people, its rule faces a crisis.
In this backdrop, the frantic gold purchases by the CCP are essentially a form of “credit stability” domestically. When the value of the renminbi is questioned due to economic recession and excessive issuance, they need gold as a hard currency to prove to the domestic and international community that there is something backing the renminbi. This behavior is like a desperate gambler at the card table flaunting their last valuable possession, trying to prove their strength.
Returning to the initial question, why is the price of gold soaring along with risky assets? It is because people are currently in a transitional period of the collapse and disintegration of the old order, while the new order is yet to be established. The credit foundation supporting all this has shown cracks: governments are continuing to issue government debt to refinance old debt and are concurrently competitively devaluing their fiat currencies. Additionally, nations like the CCP, gripped by internal governance failures and panic, are attempting to grasp the last life-saving straw in their quest for absolute power.
Therefore, the rise in gold prices is no longer merely a defense against inflation but a “thermometer” of geopolitics, a “touchstone” of global credit, and a referendum of deep uncertainty for the future.