Global Financial Shake-up: Dollar Weakens as Gold Prices Soar Amid US-China Tensions

KARACHI: The global financial system is showing signs of a significant shift as the US dollar continues to lose value and gold prices skyrocket. The spark was lit when US President Donald Trump initiated a tariff war, seemingly underestimating China and Japan’s financial leverage — their massive holdings of US Treasury bonds.
China has only fired the first round of its financial weapon, yet its effects are already being felt. As a result, gold prices have surged globally. This is due to the intricate connection between the US dollar and gold: when the dollar weakens, investors turn to gold as a safer asset.
The US owes trillions in debt, largely raised by issuing Treasury bonds bought by countries like China and Japan. As of February 2025, Japan held the largest amount of US Treasury bonds, totaling $1.126 trillion, while China held about $784 billion. Other nations like Saudi Arabia and the UAE also hold significant amounts.
The return on these bonds fluctuates based on economic conditions and is typically lower than commercial bank interest rates. On April 9, following Trump’s tariff announcement, the yield rose from 4.20% to 4.49% within a week—a 50 basis point jump. For every 100 basis point increase in yields, the US government incurs an additional $100 billion in interest costs.
If foreign countries reduce their Treasury purchases, the US must offer higher returns to attract buyers, increasing its financial burden. Worse, if major holders like China start selling off their bonds, the dollar’s value could plummet. That’s because the US pays bond interest by printing more dollars, leading to devaluation.
Already, the dollar’s dominance in global trade has declined from 70% two decades ago to just 58% today. To avoid market turmoil and preserve the dollar’s strength, Trump delayed new tariffs for three months — except on China.
Meanwhile, China has shifted strategy, increasing gold reserves instead of buying more US bonds. For the past five consecutive months, China has been adding gold to its reserves — a move being mirrored by other central banks worldwide who now view gold as a safer investment.
Speculation is growing about whether China and Japan will dump more US bonds. Although experts believe they won’t do so openly — to avoid hurting their own investments — there are reports that China quietly sold $24 billion worth of bonds.
Back in 2013, China held $1.35 trillion in US Treasury bonds. Now, that figure has dropped to around $780 billion. It’s suspected the real number is higher, considering off-book purchases through European accounts. According to Bloomberg, global investors are exploring alternatives to the dollar. For example, Canada’s pension fund is reportedly shifting investments to Europe.
If confidence in the dollar erodes, its value will inevitably fall — while gold, with limited supply and enduring value, will gain further prominence. In Pakistan, the price of gold has already hit a record PKR 357,000 per tola due to global market trends. If the US-China trade war escalates, experts warn it could cross PKR 400,000 per tola soon.
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