Where Did the Global Capital Fleeing the US Go? The "Strongest" Gold Joins Hands with the "Fiercest" Euro...

As global capital continues to flee US dollar assets, where have investors turned in panic? The most obvious winners in the global capital markets on Friday provide the answer: the euro, Swiss franc, Japanese yen, gold...

During the Asian session on Friday, as the US dollar index fell further after breaching the 100 mark, the frenzied sell-off of US Treasuries continued to escalate in a week marked by the brutal conclusion of global tit-for-tat tariff policies. These policies have heightened fears of a deep economic recession and significantly shaken investor confidence in US assets.

Currently, the yield on the 10-year US Treasury has once again risen to the high of 4.45% touched on Wednesday, with a weekly increase of about 45 basis points, the largest since 2001. The rapid rise in US Treasury yields has been attributed by many analysts to large-scale asset sell-offs, as hedge funds and other asset management companies offloaded bonds due to margin calls and losses. There is even market speculation that foreign investors may be selling US Treasuries.

An increasing number of analysts and investors have also pointed out that the significant sell-off of US Treasuries and the weakness of the US dollar this week indicate a loss of confidence in the US, the world's largest economy.

"Clearly, US assets are flowing out. Simultaneous declines in the currency and bond markets are never a good sign," said Kyle Rodda, senior financial market analyst at Capital.com. "This goes beyond the impact of slowing economic growth and trade uncertainty."

Chris Weston, head of research at Pepperstone, also noted, "A clear 'sell America' sentiment has spread across the market, with traditional safe-haven assets being favored, and the US dollar losing its safe-haven appeal."

Nomura strategist Naka Matsuzawa pointed out, "Investors now lack confidence in the US, which deeply concerns me—this is not only a vote of no confidence from US stock investors but also from US Treasury market participants in the Trump administration and its policies."

"The Strongest" Euro

From the perspective of the foreign exchange market, it is not surprising that investors have turned to the Swiss franc and the Japanese yen, two major safe-haven currencies, as the US dollar weakened significantly in a risk-off environment—especially the Swiss franc. During Friday's session, the US dollar fell to a 10-year low of 0.8141 against the Swiss franc, while the US dollar fell to a six-month low of 142.87 against the Japanese yen. Renowned economist Peter Schiff couldn't help but lament, "I have never seen such a large-scale sell-off of US assets. The US dollar, bonds, and stocks have all been hit hard. I don't remember the US dollar ever falling 3.5% against the Swiss franc in a single day. The US's ride on the global tailwind is about to come to an abrupt halt. Buckle up."

But in fact, in the foreign exchange market, the currency that dealt the most severe blow to the US dollar on Friday, or benefited the most from this round of US dollar capital outflows, was not these two safe-haven currencies—it was the euro. Historical statistics show that since the euro's inception at the end of the last century, the euro has rarely been this strong against the US dollar...

(The euro's intraday gain against the US dollar ranked first among major currency pairs)

Market data shows that the euro rose to a high of 1.1386 against the US dollar during the session, and has surged by more than 300 points since Thursday. Similar sustained gains may have only occurred during the 2008 global financial crisis.

At the same time, for the euro, the shift in strength may no longer be confined to the level of foreign exchange speculation. In the bond market, a phenomenon that has never occurred since the euro's inception is that—the extent to which German bonds have outperformed US bonds over the past five trading days has never been so large, with the premium of the 10-year US Treasury yield over German bond yields continuously widening.

In fact, in the recent global bond market sell-off triggered by the plunge in US Treasuries, European first-tier national bonds represented by German and French bonds have remained relatively resilient. This is clearly related to their strong historical safe-haven appeal. When investors believe that US Treasuries may face risks due to basis trade blow-ups, German bonds, the common "second safe-haven" in the bond market, naturally become a substitute option for many.

An interesting point is that, from the perspective of the interest rate differential commonly seen in the foreign exchange market, the widening of the yield spread between US Treasuries and German bonds should itself be unfavorable to the euro. However, when capital flees the US en masse for Europe due to panic over Trump's policies, the traditional interest rate differential logic seems not difficult to break.

Considering that European stocks have been one of the leading performers in the global stock market this year, the recent outperformance of European stock, bond, and currency markets over the US market undoubtedly means that European assets have "feasted" while US assets have "fallen"...

This also raises a future question: Can the euro, with Trump's "recklessness," completely reverse its fate and shake off the slump of the past decade?

Nomura strategist Dominic Bunning recently stated, "The euro may be the primary beneficiary of a slowdown or reversal in US market capital inflows, as these inflows mainly come from eurozone investors," adding that the eurozone may undergo "structural restructuring," supporting the euro's appreciation.

"The Strongest" Gold

Of course, while the foreign exchange market is "abandoning the US for Europe," a theme that has remained unchanged in the global market over the past few years still holds: buy gold.

Driven by safe-haven inflows, spot gold hit a new all-time high during the Asian session on Friday, reaching a high of $3,220 per ounce.

On Wednesday and Thursday, gold prices had just experienced their largest two-day gains since the COVID-19 lockdowns.

Joseph Brusuelas, chief economist at tax consulting firm RSM, said, "The root of the global market shock lies in Trump's trade policies. Confidence in the credibility of the US system has been lost, and the behavior of the entire financial market reflects this."

Liu Yuxuan, a precious metals researcher at Guotai Junan Futures, pointed out, "Gold is currently the best investment in the market. Unprecedented trade tensions have deepened distrust in the US dollar, thereby increasing demand for other safe assets."

Valerie Noel, head of trading at Swiss private bank Bank Syz, had said before the suspension of Trump's tariffs, "I think some countries are closely watching (US tariff policies) and may accelerate the diversification of investments away from US assets."

Looking at the reserve situation of various central banks recently, increasing gold reserves has been a major trend for central banks to achieve asset diversification. Trump's tariff policies and the recent turmoil in the US Treasury market are likely to further accelerate this shift in asset allocation.

Data updated earlier this week by the PBOC shows that as of the end of March 2025, China's gold reserves stood at 73.7 million ounces, an increase of 90,000 ounces from the previous month. This is the fifth consecutive month of gold reserve increases by the PBOC since last November.

Renowned economist Peter Schiff had also expressed strong support for gold's prospects on Thursday. He pointed out, "The deteriorating US economic conditions and stagflation prospects have created an attractive environment for gold investment. Given the strength of gold prices and the decline in oil prices, gold mining companies may also benefit."