[Market Analysis] "Sell off the US dollar, buy 'this'"... Where is the smart money quietly flowing to

The White House’s pressure on the Federal Reserve is intensifying, and the massive flow of funds in the global financial markets is changing. Investors seem to no longer trust the “US dollar” and “Treasury bonds.”

Bloomberg macro strategist Simon White analyzed in his latest column that speculative forces are preparing for an era of fiscal dominance, rapidly shifting positions to “short the dollar” and “long physical assets.”

■ “Don’t trust the Fed”… The indecisive Powell’s baton

Market unease began with the White House’s public intervention. Recently, the White House instructed the Department of Justice to issue subpoenas to the Fed and ordered Fannie Mae and Freddie Mac to purchase $200 billion in MBS to lower mortgage rates.

Goldman Sachs chief economist Jan Hatzius admitted at a conference in London: “Recent criminal investigations have undoubtedly heightened concerns about the Fed’s independence.” Although he added that “Chairman Powell will make decisions based on economic data during the remainder of his term,” the market seems to have concluded that the Fed will have to bow to political pressure.

This immediately signifies that a new era of ‘fiscal-led’ monetary policy, where monetary policy is subordinate to government fiscal policy, has arrived. Its structure is: the government funds itself through debt issuance, while the central bank must print money to support it. The obvious result: higher inflation and currency devaluation.

■ Speculative bets: “Paper money go away, real assets are coming”

Market participants have already voted with their wallets. According to the latest COT (Commitments of Traders) data, the flow of funds from speculative forces is very clear: selling the depreciating dollar and buying tangible assets that can resist inflation.

Net long positions (top holdings): copper, gold, palladium, gasoline, silver, platinum, coffee

Net short positions (top holdings): US dollar index, USD/EUR, USD/MXN

Especially copper, gold, and palladium have accumulated the highest buy positions in nearly five years. Meanwhile, large-scale short positions have been established against the US dollar index, betting on a weaker dollar. “Abandon paper money, hold physical assets” is the message conveyed by smart money.

■ Warning from the bond market: “US Treasuries are no longer safe”

The creditworthiness of US Treasuries, considered the safest assets, is also wavering.

According to JPMorgan’s client survey, last week, bond buy positions sharply declined while sell positions increased. Analysis of asset management firms and leveraged funds also shows an increase in net short positions on 10-year Treasury futures.

Experts point out that if it weren’t for geopolitical tensions around Venezuela and Iran, yields on Treasuries should have soared even higher (bond prices plummeted). This indicates that geopolitical instability has merely stimulated safe-haven sentiment, suppressing interest rate rises. From a fundamental perspective, the attractiveness of Treasuries is declining.

■ The ‘spectacular rise’ of gold and silver has just begun

The ultimate winners of this situation are precious metals. Gold and silver, benefiting from the dual “fiscal-led” currency devaluation and geopolitical crises, are experiencing explosive growth.

As of the time of writing, gold has risen about 1.7%, and silver has surged nearly 5%. Simon White stated: “Physical assets are the best means to resist currency weakness and value erosion,” and advised to follow the current dominant market trend.

The more government funds are injected, the faster your cash melts away. It is time to reflect: why are speculative forces abandoning the dollar and accumulating gold and copper?