- The recent gold price rally has been driven by China, in part due to the PBoC’s move to “de-risk” away from US Treasuries.
- However, there also appears to be a strong demand for gold from Chinese households, which underscores the scale of the capital outflow challenge confronting the PBoC, thus amplifying the depreciation risk facing the CNY and other Asian currencies.
- Lower demand for UST as China’s surplus is shifted to gold may, in the medium term, force the Fed to loosen its policy and provide more liquidity support for the UST market.
