Flows

On February 4th, 1965, Charles de Gaulle held one of his Elysee Palace press conferences. He argued that the U.S. enjoyed an extraordinary privilege because America could settle international obligations by issuing dollars, while every other country had to earn the dollars. He wanted international settlement to return to something that bore the mark of no individual country. His answer was gold, and France was repatriating its bullion from New York. But he was frustrated by how slowly physical gold was arriving. So, de Gaulle proposed a solution where he would send the French cruiser Colbert to New York to bring back the gold. His finance minister Valery Giscard d’Estaing persuaded him not to do it, as it would be too provocative. Instead, France quietly deployed a fleet of Boeing cargo planes to carry bullion from JFK to Orly. The public only found out about the incident decades later from archival research on Banque de France records.

We seem to be reaching a similar time where many nations are questioning the world’s monetary foundations and starting to generate flows that represent this view of elevated risk.

Last week it was reported that the Dutch central bank moved approximately 86 metric tons of gold held in the US and Canada to London. “A more balanced distribution of these reserves between North America, the United Kingdom and the Netherlands helps to spread risks and will make them more readily available for use in a crisis situation,” the central bank said in the statement. What crisis they are preparing for was not stated. The gold was transferred from a combined total of approximately 313 tons held in the US and Canada, so the Netherlands still maintains a sizeable store. While the Netherlands made it seem like a bureaucratic change, perhaps Dutch central bank archives will show a spicier conversation behind the move.

Norway’s sovereign fund proposed to cut its government bond weight from 70% to 50% of its fixed income portfolio. This would be a $130 billion reallocation away from sovereign debt. Its Treasury holdings are $207 billion, making it one of the larger foreign holders of Treasury bonds. By focusing the sovereign weight on liquidity management and collateral, rather than as a core holding, it reduces a major buyer from the sovereign market when it needs more buyers. The change again implies bureaucracy, but I bet their archive readings will be interesting too.

The GPIF, Japan’s large pension fund, held an unscheduled management committee meeting on August 21st, the first time in seven years, with asset allocation on the agenda. JP Morgan noted this was “highly unusual” and suggested the committee may be reconsidering its previous stance in March to not change allocations. The sharp rise in JGBs may have been the catalyst. The GPIF has a four-quadrant allocation split for its $2 trillion portfolio with equal 25% weightings for domestic bonds, foreign bonds, domestic equities and foreign equities. The largest single component of the foreign holdings are U.S. Treasury bonds. If the weight shifts towards domestic bonds, this would be another leg of reduced demand for Treasuries.

Bloomberg reported that as of June 30th, global pension funds and insurers across Japan, Canada, Taiwan, Australia, Denmark and Finland hedged just 41% of their foreign currency exposure. This means most of their exposure lacks protection. If the dollar fell, the value of their Treasury reserves would decline. Laura Cooper, head of macro credit at asset manager Nuveen, said, “Given the scale of foreign holdings of U.S. assets, it doesn’t take a dramatic change in positioning to matter.” A 5% increase in hedge ratios would translate into $230 billion based on $4.6 trillion of foreign-currency holdings across six markets.

In isolation, these news items would not raise an eyebrow. But together they signal that official and quasi-official demand for Treasuries is thinning at the margin, at a time when the need for buyers is increasing. I’d put more than even odds that the term premium will do more of the fiscal work over the next 12-18 months, because when the largest buyers all trim a little, someone must be paid more to take their place. With the U.S. government continuing to do nothing to rein in the fiscal deficit, this creates the seeds of serious market volatility. I’d be more positive if active steps were taken toward fiscal consolidation, but there doesn’t seem to be any fiscal responsibility on the horizon. Sixty years on from de Gaulle’s gold movements, the flows have changed, but the ideas remain the same.

Restarting the Gold Run

UBS’s Chief Strategist Bhanu Baweja wrote an FT editorial suggesting that gold’s run isn’t over yet. The traditional model shows that a 1% move in real rates led to a 14% decline in gold. However, after Russia’s FX reserve freeze, this relationship broke down. From March 2022 to October 2023, real rates rose 4% but gold rose 7%, whereas the model would have predicted a 55% decline. During the following two years, real yields fell 1% but gold rallied 110%. This signals that gold is highly responsive to falling real yields, but largely immune to rising yields.

Part of this change in trend can be attributed to the behaviour of emerging market central banks, who have taken gold holdings from 5%-7% of reserves to 11%, but developed economies hold 30% allocations, the notable exception being the UK, which sold its gold.

Baweja noted the potential for fiscal dominance, a key dynamic that may be spurring central banks to buy gold. With the U.S. debt at $40 trillion, there will be pressure on the Fed to cut rates to keep interest expense down. Fiscal dominance is already being seen in Japan, where the government has been pressuring the BOJ not to lift rates, leading to significant yen declines.

China appears to be building a parallel monetary system with gold as collateral. A recent report by S&P on Chinese gold miners suggests why. The report noted that Beijing reclassified gold from a financial asset to a "strategic mineral" in 2025. They aren’t using the gold to build electric vehicles or robots, so the reclassification move likely reflects an effort to internationalize the renminbi. "If you are trading in renminbi, there's always a question as to how you are going to use the renminbi," said Charles Chang, greater China country lead for corporate ratings at S&P Global Ratings. "But if that renminbi is convertible to gold, then that's a potentially different picture. Gold is tradeable. It is usable in a lot of places. The network offers connectivity to the world's largest physical gold market," Chang said. "It could also attract countries looking to diversify, onshore or nearshore their gold storage to enhance control."

The monetary competition to the dollar isn’t hiding its aim. The biggest threat to gold is U.S. fiscal responsibility, which seems as far away as AI labs controlling their agents. Entitlement spending is on autopilot and neither party has a constituency for cutting it.

India and the Reverse Brain Drain

Indian professionals entering the EB-2 queue for U.S. visas could face a theoretical 179-year wait under longstanding U.S. green card quotas. At the same time, Trump’s H-1B restrictions are making the broader immigration route more difficult.

This could be a positive long-term catalyst for India. For decades, there was a brain drain as India’s most promising talent worked in Silicon Valley or for American companies. Think Satya Nadella of Microsoft and Sundar Pichai of Google. Now with Indians forced to move back, there is the possibility of a ‘reverse brain drain’ where U.S. companies open offices in India to employ Indians who were educated in America. Taiwan’s semiconductor industry developed from Taiwanese professionals learning at Texas Instruments and RCA and then returning to Taiwan. Something similar could happen with India.

The statistics are still early. Indian tech professionals returning from the U.S. to India increased 50% from 2024 to 2025 to 15,100 professionals. The number of Indians studying in America dropped to 352,644 from 378,787. These numbers don’t show anything definitive yet. But over the next 1-3 years, we’ll see if the numbers turn more exponential. If so, India’s growth rate could improve, and become a more investable theme.

End Note

In 2022, 90% of complaints about Dublin Airport were from one person, who made over 22,000 complaints in one year. I wonder if this guy is going to build an AI agentic system.

Recent London Brief commentary on the dollar has been negative. But fiscal responsibility is not out of the question. For instance, U.S. military spending is 3.1% of GDP and 13% of the budget. About half of this relates to wars and programs that are more a choice than a necessity. Medicare, Medicaid and Veteran Benefits (which is mostly healthcare spending) is 8.5% to 9.0% of GDP and 36% to 38% of total federal government spending. Radical healthcare reform could dramatically reduce these numbers. There is no reason dollar hegemony must end.

Omar Sayed