US Treasury volatility, Fed policy game and global central bank gold hoarding: dual challenges under the US dollar system

1. The US economic “stagflation” dilemma and the dilemma of policy authorities

In the first half of 2025, the US economy is deeply trapped in the shadow of stagflation of “low growth and high inflation”. The International Monetary Fund (IMF) lowered its GDP growth rate from 2.8% in 2024 to 1.8%, and the OECD further dropped to 1.6%. Consumer data deteriorated across the board: the consumer confidence index fell to 50.8 in May (the lowest since June 2022), and the average annual loss of household disposable income due to tariffs was US$1,700-8,100, with low-income groups suffering 4%; at the same time, the core PCE inflation rate is expected to exceed 3.2% by the end of the year, far exceeding the Fed’s 2% target, and the price of imported goods such as leather and electronic products has increased by more than 15%, with an average annual additional expenditure of US$3,800 for a single household.

The labor market presents structural contradictions: although the unemployment rate briefly fell to 4.0%, the number of job vacancies fell to the second lowest level in four years, and corporate recruitment demand continued to cool. Economists warned that the unemployment rate could soar to 4.4% by the end of the year. The manufacturing PMI rebounded to the expansion range of 52.3, but it was mainly driven by companies’ advance stockpiling to avoid tariffs. The growth rate of purchasing inventory hit a new high since 2009, while actual new orders grew weakly. Supply chain bottlenecks intensified, delivery time extended to the worst level in 31 months, and tariffs pushed up import costs. Manufacturers’ selling prices and input costs recorded the largest monthly increases since September and August 2022, respectively.

2. U.S. Treasury market volatility and the Treasury Department’s aggressive support

Against the backdrop of deteriorating economic fundamentals, the U.S. bond market has become the core battlefield of policy games. After “Trump Liberation Day” in April 2025, the 30-year U.S. bond yield approached the dangerous level of 5%. Market panic stems from two aspects: one is that foreign institutions sold U.S. bonds to stabilize the exchange rate of their own currencies, and the other is the liquidity chain reaction caused by the liquidation of $2 trillion basis trading. U.S. Treasury Secretary Bensont sent a strong signal on April 14, suggesting that “expanding U.S. bond repurchases” would be the core means; six weeks later, the Treasury Department set a record of $10 billion in Treasury bond repurchases, and the scope of operations expanded from short-term bonds to 10-20 year long-term bonds, doubling the scale of similar operations in May.

Faced with such a severe situation, U.S. Treasury Secretary Benson decisively released a strong signal on April 14, suggesting that “expanding U.S. bond repurchases” would be the core means of stabilizing the market. This news was like a bombshell, causing a thousand waves in the financial market. Six weeks later, the U.S. Treasury Department fulfilled its promise with practical actions and set a record for Treasury bond repurchases with a repurchase scale of US$10 billion. It is worth noting that the scope of this repurchase operation is no longer limited to the previous short-term bonds, but has been further expanded to long-term bonds with a term of 10 to 20 years, and the scale has doubled compared with similar operations in May.

In essence, this “lite quantitative easing (QE)” strategy is actually a curve correction of the Fed’s balance sheet reduction policy. Since April 2024, the frequency and scale of the U.S. Treasury’s repurchase operations have shown a step-by-step upward trend, especially in the second quarter of 2025, this trend has accelerated significantly. This series of measures has aroused widespread doubts in the market. When the Federal Reserve is accused of having a “political” tendency, such as choosing to cut interest rates before the election but turning a blind eye to the reality of high core PCE, does the Treasury’s aggressive repurchase operations mean that it is forced to take over the Treasury market in its entirety? Is the “aggressive bond issuance” strategy that was once pursued in the Yellen era about to completely give way to the current “Bessant-style market support” strategy, and will this situation continue until the Fed adjusts its monetary policy stance?

3. Global trust crisis and the rise of gold under Trump’s tariff policy

The Trump administration’s erratic tariff policy has become a catalyst for economic stagflation and has shaken the world’s trust in the dollar reserve system. Although the “reciprocal tariff” was suspended in June 2025, the 10% “base tariff” and the high tariff of 125% on China are still retained, leading to an intensified fragmentation of the global industrial chain. Atlanta Fed President Bostic warned that the price increase caused by tariffs will be apparent in the coming weeks, and if it continues, it may lead to the “solidification” of inflation expectations; Chicago Fed President Goolsbee bluntly stated that the central bank lacks a response script under the risk of “stagflation”.

This policy uncertainty directly drives global central banks to accelerate their gold reserve layout. According to Goldman Sachs data, global central banks hoard about 80 tons of gold (worth $8.5 billion) per month, and most purchases are kept secret. The World Gold Council shows that central banks and sovereign wealth funds purchase 1,000 tons of gold each year, accounting for a quarter of the global mining volume; among the 72 central banks surveyed by HSBC, more than one-third plan to increase their gold holdings by 2025, and none intend to sell.

4. The wave of de-dollarization: the logic of gold as a “de-risking” asset

The essence of the gold buying wave is a hedge against the risk of “weaponization” of the US dollar. Since the outbreak of the Russia-Ukraine conflict in 2022, more than $300 billion of Russia’s foreign exchange reserves have been frozen by Western countries. This unprecedented financial sanctions event has completely overturned the global central bank’s perception of the security of international reserve assets. Data show that after the outbreak of the conflict, the annual net gold purchases of global central banks surged from 450 tons in 2021 to 1,136 tons in 2022, setting a record high since 1950, and the gold purchase rate doubled. This panic buying behavior reflects the deep concerns of various countries about the fragility of concentrated holdings of US dollar assets. The divergence between price and trading volume can better provide insight into the undercurrents in the gold market.

According to data from the London Bullion Market Association (LBMA), from 2022 to early 2025, the international gold price soared from $1,700 per ounce to $3,400 per ounce, doubling, but the publicly disclosed gold purchases by various countries remained at a stable level of about 1,000 tons per year. Behind this divergence between quantity and price, a large number of “secret purchases” are quietly taking place. The World Gold Council’s 2024 special study pointed out that the transparency of global central bank gold purchases continued to decline, with only 33% of transactions disclosed through official channels, and the remaining more than 1,200 tons of gold were traded through non-public channels such as the Swiss OTC market and the Singapore Gold Exchange.

These covert operations are essentially the implementation of a “progressive gold reserve strategy” by emerging market countries. According to the International Monetary Fund (IMF), India, Turkey and other countries are trying to gradually increase the proportion of gold reserves to foreign exchange reserves from the current 10% to a “safety threshold” of 20%. The forward-looking judgment of international investment banks further verifies the rising potential of gold. In its first quarter 2025 strategy report, Goldman Sachs Group maintained its year-end target price of $3,700 per ounce, believing that factors such as geopolitical conflicts and the US debt ceiling crisis will continue to boost risk aversion demand. JPMorgan Chase’s quantitative model gives a more radical forecast: if foreign investors convert 0.5% of their $7.4 trillion in US assets into gold, according to the current supply and demand structure, the gold price may reach a historical extreme of $6,000 per ounce in 2029. This deduction based on asset allocation transfer reveals a huge potential demand gap in the gold market.

5. Deep cracks in the US dollar system and policy linkage effects

The “active support” and “wait-and-see rate hike” of the US fiscal and monetary authorities are in sharp contrast: the Treasury Department implements disguised QE by repurchasing US bonds, while the Federal Reserve postpones interest rate cuts due to tariff inflation risks. The game between the two has intensified market doubts about the credit of the US dollar. UBS analyst Castelli pointed out that the policy uncertainty of the Trump administration and the controversy over the independence of the Federal Reserve are accelerating the diversification of central bank asset allocation, and the share of the US dollar in global reserves may “decline at a faster rate than in previous years.”

In the short term, the Fed’s interest rate meeting on June 17 and the Treasury’s repurchase scale will become a key window for policy shifts; but in the long term, the stagflationary pressure of the US economy and the global wave of de-dollarization have resonated. When the US bond market relies on fiscal support and the Fed is caught in a policy dilemma, the strategic value of gold as a “de-risking” asset is reshaping the global financial landscape – this is both a response to the disorder of US policies and an inevitable choice for the diversification of the international monetary system.