Gold surges, oil prices plummet, the Fed's worst fears are coming true.
Since the Fed's rate cut, international gold prices have soared rapidly, with the spot gold price in London breaking historical records, surpassing $2,700 per ounce.
Meanwhile, oil prices have been continuously diving, falling below $70 per barrel for the first time in two years.
The surge in gold and the drop in oil prices both point to one issue.
That is, in the coming period, the US dollar will inevitably become weaker and weaker, and America's sickle will no longer be sharp.
At this time, across the ocean, Chinese assets have begun to gain popularity.
This dollar rate cut is like a butterfly flapping its wings over the Pacific, causing a storm in the global financial market, what impact will it have on China's economy?
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The relationship between gold, oil, and the dollarWhen the Federal Reserve initiates interest rate cuts, the last thing they want to see is gold prices rising and oil prices falling! This is because it affects the value of the US dollar. They want to maintain the value of the US dollars they hold so that they can continue to reap the world's high-quality assets.
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However, the rise in gold and the fall in oil prices can make the US dollar increasingly weak. Why do we say this?
This involves the essence of the US dollar - price anchoring. As we all know, before the 1970s, the US dollar was fixed at a price of $35 per ounce, tied to gold, thereby replacing gold as the settlement currency for international trade.
However, because more and more US dollars were printed, the Americans later refused to pay gold, leading to the collapse of the dollar-gold system.
Since then, gold has mainly played a risk-avoiding role in the global financial system, and the US dollar and gold have become a seesaw relationship. When the US dollar is strong, gold is weak; when the US dollar is weak, gold is strong.
Therefore, when the price of gold priced in US dollars rises sharply, it also means that the real value of the US dollar is falling sharply at the same time.
Oil, on the other hand, is just the opposite. After the 1970s, after the US dollar decoupled from gold, the foundation that supported the US dollar to continue as an international settlement currency became the indispensable basic energy material of industrial society - oil.Any country that wants to develop its industry must purchase oil, and in large quantities. This is because oil is not only a source of energy but also the raw material for most chemical products, determining the production of synthetic resins, synthetic fibers, and synthetic rubbers, which are three major synthetic materials. This involves almost all industrial sectors.
The US dollar has monopolized the global oil settlement currency system, which means that when buying oil, one must use dollars!
In other words, the total annual global oil trade volume is the foundation of the US dollar's value.
If the price of oil falls and the trade volume does not change significantly, it means that the total oil trade volume is decreasing, and the foundation of the US dollar is shrinking.
Therefore, the recent changes in international gold and oil prices are eroding the foundation of the US dollar, making it weaker and affecting its purchasing power!
However, another question arises here.
Whether due to geopolitical conflicts or other reasons, major oil-producing countries have been reducing oil production in the past two years. But why does the price of oil continue to fall when production is reduced? Shouldn't the price rise when supply decreases?
The reshuffling of the global energy landscape
This must be attributed to our country's forward-looking layout.
The transition from oil-powered vehicles to electric vehicles and the rapid expansion of green electricity.In the context of reduced oil production, prices continue to fall, which can only be attributed to a decrease in demand. Over the past few years, the global economy has cooled down, and the demand from the manufacturing industry has been weak, which indeed is one reason for the reduction in demand. However, there is a more critical reason: the global energy structure is gradually shifting from fossil fuels to green electricity.

For the year 2023, the proportion of global green electricity in total electricity generation has exceeded 30%, which is beyond the imagination of many people. Behind the rampant expansion of global green electricity is the transformation and effort of Chinese manufacturing. Not only does the domestic green electricity generation account for nearly 40%, but the generation capacity also exceeds 50%. Moreover, our country has reduced the prices of photovoltaic panels and wind turbines, allowing the cost of green electricity to decrease rapidly.
The cost of electricity generation from photovoltaic panels has been reduced to between 0.2 and 0.5 yuan per kilowatt-hour, and wind turbines can even be built on credit, with payments made in installments from the income generated by electricity production. For many countries, it is now more cost-effective to build wind and photovoltaic power plants than to import oil.
As energy demand shifts from fossil fuels to green energy, the demand for fossil fuels will significantly decrease, making it difficult for oil prices to remain strong. The decline of the US dollar becomes increasingly evident. It is hard to imagine that the value of the US dollar is starting to depend on the face of Chinese manufacturing.Global Capital Accelerates Flow to China
Looking at the recent trends in gold and oil prices, one might notice a peculiar phenomenon: between October 1st and October 7th, the movements of gold and oil were relatively favorable to the US dollar. However, after October 8th, the market suddenly made a 180-degree turn.
This special period coincides with China's National Day holiday.
What's more intriguing is that during this time, the United States deliberately released two pieces of data: one on new employment figures and the other on the index of falling prices. They respectively indicate that US employment is strong and better than expected. US prices are still high and are falling slower than anticipated.
It seems to imply that the Federal Reserve clearly regrets its interest rate cut and will not continue to cut rates so quickly in the future. To ensure that everyone understands the implication, Federal Reserve Chairman Jerome Powell even stated in a public speech that the dollar will not rush to cut interest rates.
Behind all this is the fact that after the Federal Reserve's rate cut, global funds flocked to China. This is completely contrary to the US expectation of the funds flowing to Europe and Japan.
Once China gains the support of a large amount of global capital, coupled with the support of a vast manufacturing entity, it will have the power to challenge the US dollar in the global payment settlement system.
This is because frequent use and credit of a currency are the foundation of an international currency, and China is in the process of establishing and perfecting this foundation.