Strategist Luke Gromen argues that China's staying power in the U.S.-Iranian conflict positions gold as the winner and the U.S. dollar as the loser. He expects rising bond yields to push the Federal Reserve toward yield curve control, weakening the dollar and lifting gold.
Gold stands to gain and the U.S. dollar to weaken as China outlasts the United States in the Middle East, according to strategist Luke Gromen. Gromen, founder of the research firm Forest For The Trees, made the case in an interview with Eric Townsend on the Macro Voices podcast.
China outlasts the U.S. in the pain contest
When the fighting started at the end of February, the consensus held that China would be hit first. Instead, the U.S. Treasury market blinked first and threatened dysfunction. China then flexed its geopolitical power in March, cutting oil imports by 3 million to 4 million barrels per day while still growing, drawing on its strength in solar panels, battery technology and electric vehicles.
Gromen contends China is content to let the conflict drag on because it drains U.S. economic and military resources, keeping oil prices low enough to avoid a crisis yet high enough to fuel inflation. That drain, he argues, strengthens China's relative position.
Bond markets strain everywhere but China
Western bond markets are straining to contain yields. The U.S. 30-year bond is approaching 5.2%, while European and Japanese yields are surging. According to Gromen: "the only bond market in the world that's not straining on the upside is China", where 10-year yields remain anchored around 1.75%.
Gold over the dollar
China's long-term aim, Gromen contends, is to reshape the global currency system in its favour, with gold replacing the Treasury bond as a neutral reserve asset and oil and gas paid for in yuan and settled in gold. He expects rising yields to force Fed Chair Kevin Warsh and Treasury Secretary Scott Bessent into a choice between the bond market and the dollar. Gromen thinks they turn to yield curve control and let the dollar take the hit, which underpins his bullish view on gold.
Source: MarketWatch
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