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Since no one's posting...
The dollar is done dude. It was nice while it lasted. But I believe that the U.S. dollar's reign as a universal reserve currency has ended. Over time fewer countries will hold U.S. treasuries and do business in U.S. dollars.
But why?
The dollar is a bad investment. How would you feel about holding a currency that is controlled by the government of a foreign country? You'd feel pretty bad if that country is $35 trillion in debt and will need to print trillions more every year to have any hope of even making the interest payments.
China is dumping U.S. treasuries and buying gold instead. It just makes financial sense.
U.S. treasuries are suffering their worst bear market possibly ever. Let's say you bought TLT (a long-term treasury ETF) at its peak in 2020. Today, you'd be down by more than 50% in real terms. What is supposed to be a "safe" investment becomes very unsafe in the presence of inflation.
The long-term picture isn't much better. Since the end of the gold standard in 1971, gold has outperformed U.S. treasuries. Simply buying and holding a lump of rock is better than holding the debt of the U.S. government. And the government was actually in good financial health for most of those years, unlike now.
The U.S. is not a trustworthy partner. Before Russia invaded Ukraine, Russia held about $600 billion in currency and gold reserves. About half of those reserves, $300 billion, were held in the West. After the invasion, those reserves were frozen. Now, they are now likely to be given to Ukraine.
Because of this, there is no reason for a country like China (or any other country for that matter) to store their wealth in the West, or to hold U.S. dollar-denominated assets. It's all conditional on U.S. allegiance.
For most countries, trade with China is more valuable than trade with the U.S. China now dominates most of the world's industries, and the trend continues to point in that direction. Third world countries often have much stronger trade ties with China than they do the U.S. They export natural resources and import Chinese goods. Increasingly, they can do without U.S. goods and services. Do what we say or otherwise you can't have our, um, Microsoft Excel licenses...
As this process strengthens, China will be able to lean on these countries to do business in Yuan, or perhaps in some resource-demoninated currency.
Okay, so the dollar is done. What comes next? Probably nothing major. I don't think that the Yuan will become the reserve currency, or that we'll move back to the gold standard (although global reserves will be held increasingly in gold). But the U.S. dollar will no longer be the uncontested reserve currency. The world will once again be multipolar, with the U.S. just one of multiple competing forces, and not necessarily the strongest one.
In the long run (10+ years) I expect gold to significantly outperform treasuries.
My question is, so what? What do I, a retail investor pleb with barely six figures saved, mostly in things like equities and 401k, do with this information?
Do I look for Vanguard Gold funds, instead of broad market indexes? Do I take the $20k in my savings account earmarked for a bathroom remodel and convert it into gold and silver? Do I buy Bitcoin and make sure I have self custody?
These predictions have been coming for years, and I suppose they are finally coming to fruition. I remember back in 2009 I used basic macroeconomics to predict large inflation, which never really materialized until 2021, when all sorts of other factors could have been the cause.
Not much. We're probably just all going to have to be poorer for awhile as stagflation bites.
Here's what I'd do. Over time, I'd stop putting new money into bonds. While I'm actually somewhat bullish on treasuries in the 2-5 year time frame, they are doomed to suck in the long run due to the massive U.S. deficits. Personally, I think a 10% allocation into precious metals (either physical or in funds) make sense and will diversify your portfolio. But over time equities have outperformed gold.
And for the love of God, do NOT buy gold miners.
Second this. Gold has done very well over the last few years but gold miners are basically flat. The market doesn't expect gold miners to be able to keep a lid on their production costs in the medium term (which might tell you something about other firms).
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