The dollar continues to lose popularity on the global stage. Right now, the signs are subtle— shrinking holdings of U.S. Treasurys by other nations, negative statements about the dollar from world leaders—but the story they tell is clear. The U.S. dollar could fall, and it could be taking the stock market with it.
De-dollarization is becoming more noticeable at the global level.
The amount U.S. Treasurys purchased by foreign buyers has decreased by 60 billion from the end of 2023 to the start of 2024, according to Treasury Department data compiled by MarketWatch.
This appears to be part of a broader trend. In August 2023, for example, China’s central bank slashed its holdings of U.S. Treasurys to a 14-year low, the latest in a pattern of consistent actions by the People’s Bank of China to decrease their dollar-based reserves in favor of other assets.
This trend could destabilize some American portfolios.
While de-dollarization may only be a long-term goal for some nations, its effects may be seen much sooner. Lisa Shalett, CIO of Morgan Stanley Wealth Management, says in a note published on March 18, 2024, that portfolio holders may wish to “consider preparing for a U.S. dollar regime shift.” Shalett explains that “structural pressure” on the dollar could threaten equities like stocks.
When discussing assets that could perform well against outflows of stocks, Shalett points to an age-old solution for protecting wealth against destabilization: physical gold.
Gold could act as protection against global instability and de-dollarization.
As a hedge against potential turmoil caused by de-dollarization, Shalett points to gold, noting that the precious metal has been rallying in recent months as portfolio holders shift their money into assets that can act as counterbalances to global instability.
Those portfolio holders include nations. Remember when I mentioned that China cut its Treasury holdings to 14-year lows? At the same time, the Chinese government added 29 tons of gold to their reserves.
Physical gold has long been considered a smart way to balance a portfolio against instability. In times like these, holding physical gold is a strategy that may prove essential.
