Global Liquidity Updates

Gold has seen 6 consecutive green weeks since December 30th, with this week starting green as well and near a big psychological level - which is the $3,000 mark.

After more than 3 and a half years of ranging between $2,085 - $1,614, gold broke out and is currently setting record high after record high.

Why exactly is that?

As we know, gold has been a safe haven since forever.

During rough times, investor consensus is turning towards it.

Since the '24 ATH breakout, gold has been on an insane run - its moves are following our Global Liquidity Index for the most part, but as you see on the chart below, GLI is yet to make a significant move - due to the Fed still holding its foot on the brake.

On the other hand, gold has, despite this, been ripping higher.

Key factor due to which gold has been on this massive run, is the buying pressure generated by countries - China in particular, which has purchased ~20 tons of gold over the past 3 months alone.

Not so long ago, China came out with some pretty bullish news for gold - allowing insurers to buy it for the first time ever, and opening the market to potential ~$27 billion of buying pressure.

Many argue that either the deflationary environment or the trade war with the US is what is causing this - but we believe it comes down to one of the two reasons mentioned below.

Preparing for what's to come

Once the US starts repaying its massive debt for this and next year, it will need quite a bit of liquidity to do so.

As the West continues to provide that liquidity, the rest of the world will not ignore it and quite the opposite - they will gladly follow the free-presented money trade.

Conversely, if they can't repay the debt, then a big crisis truly is ahead of us.

Undermining the US Dollar

The goal may be to dethrone the US dollar and weaken America's currency.

How?

With help from the US itself, as reckless debt refinancing reduces the dollar’s appeal as a store for your future - all while they offer the renminbi backed by gold as the new store of value.

While the US is leaning on expanding its power with stablecoins, the Chinese are sticking to the old method and strategically selling their dollars for gold, making their next move on the chessboard.

These are Major General Qiao Liang's words:
"We should promote the renminbi to the primary currency of Asia. Just as the dollar first became the currency of North America, and then the currency of the world."

They actually mean it!

So while the US is focusing on the digital future - crypto - China is staking more and more gold.

Who's going to win this game of chess?

Is it the US, by creating a Strategic Bitcoin reserve & expanding their USD stablecoin reach and therefore leaving China in the dust, or will China win this by playing it 'safe'?

Bullish for Bitcoin

No matter how it ends, all ways lead to a higher Bitcoin value.

Below is a XAUBTC chart.

We've highlighted gold's outperformance against Bitcoin here in order to show a key pattern.

When gold moves first and consolidates after, that's when Bitcoin takes off.

Right now the same setup is playing - for the fourth time - gold is leading while Bitcoin moves sideways.

Are you mentally prepared for another 1-2 months of gold outperforming while Bitcoin stays quiet?

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As of February 7th, the Treasury has used up more than 60% of its extraordinary measures - likely even higher by now.

The key question: when will they tap into the liquidity everyone is waiting for?

We expect the TGA drawdown to begin next week, though it will likely be temporary.

Tax season in April will refill the account before another decline begins—until a new debt limit or suspension is agreed upon.

Meanwhile, the Fed shows no signs of halting QT.

Other bullish indicators include the Q4 2024 loan survey.

While demand remained weak, banks anticipate a rise in loan demand for 2025, supported by signs of improvement in the business cycle, such as an uptick in ISM PMI data.

Trump's new tariffs on China had no effect on the dollar, confirming our expectation that a big down move is coming.

While the Fed’s tightening continues, we believe the TGA drawdown could offset these effects, leading to a net positive liquidity injection in the coming weeks.

With so much focus on TGA levels, a frontrun seems likely.

Our Global Liquidity Index increased by $0.566 trillion this week, marking a 0.44% increase.

The 3-month change is showing improvement but still lags behind the 12-month change.

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Coming through with a quick intra-week Liquidity update.

Since we first shared it, the RoC has continued to decline, with Bitcoin following it.

However, we’re now seeing early signs of improvement in the RoC of the GLI on lower timeframes.

Bank reserve balances remain extremely low, but if the RRP drain persists, a new tool from the Fed-essentially QE-could already be in play.

Scott Bessent's first QRA suggests he's following Janet Yellen's approach by issuing short-term bills.

The estimated TGA balance by the end of March is projected at $850B, but with the debt ceiling already reached, the Treasury will likely need to start draining the TGA sooner rather than later to fund government operations-at least until a new debt limit is set.

For now, extraordinary measures remain in play.

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