In 30 seconds: Luke Gromen and others argue that a major revaluation of gold versus the dollar and yuan is the only viable mechanism to rebalance global trade with China, drawing historical parallels to Britain's silver-based trade tensions in the 1760s. A stronger-than-expected US jobs report combined with persistent inflation has dashed hopes for near-term Fed rate cuts, triggering a sharp Friday selloff led by the Nasdaq 100 and AI/semiconductor stocks. China's massive and growing trade surplus is driven by surging manufacturing and auto exports even as domestic demand weakens, with local government factory subsidies and export controls on critical materials adding to global trade tensions. The ongoing US-Iran conflict is roiling energy markets, with oil prices swinging sharply, the US drawing down SPR reserves toward 40-year lows, and crude shipments continuing through the Strait of Hormuz via dark vessels.
Gold closed at $4,351.90 on the day, up 0.34%. At that level, it sits at the center of a debate about whether gold — not FX alone — is the right mechanism for resolving the trade imbalance. The argument runs like this: if FX does the adjustment alone, China will suffer 30 years of stagnation like Japan did when the US strong armed Japan into revaluing JPY higher at Plaza Accord. The alternative is letting gold do the work. This is not a new idea. World Bank President and Former US Treasury official Robert Zoellick wrote of using gold this way in 2010. China has talked about using gold that way for 17 years or more. The historical parallel is surprisingly literal: China argues the issue is not its trade surplus but that the USD is wildly overvalued against gold. Debt or markets, the argument goes, will force gold higher regardless of whether anyone plans it that way. The same dynamic played out between Britain and China in the 1760s, except with silver. Meanwhile, China imported 939 tonnes of gold in 2025. The yuan itself has already fallen 82% against gold in the ten years from when CNY was announced it would go into the IMF SDR, moving from 6700 to 36000 per ounce. Not everyone is persuaded. The jump from 2024 to 2026 is not justified by interest rates going to eg zero — more likely to be speculative mania than a fundamentals-driven repricing. Global gold stocks as a share of global GDP stand at 18%. That looks, to skeptics, less like monetary architecture and more like a bubble. Silver, meanwhile, settled at $68.29, down 0.95% on the day.
The Fed meets next week, and the overwhelming expectation is for no rate change. President Trump has been commenting on Fed Chair Warsh and central bank policies, which adds the usual layer of political noise to a decision that was already made by the data. Only 15.5% of the labor market drives the economic cycle, while 25% is recession-proof.
China's domestic economy is weak, and the arithmetic is uncomfortable. Export strength can keep the Chinese economy above water when internal demand falls short, but it can't support it forever. Consider autos. China's internal demand growth cannot support 4% growth, let alone 5% growth. Even with 12 million in exports, China will have the capacity to export a lot more — at least 10 million, almost certainly 15 million, possibly more.
The situation in the Gulf keeps getting worse in the specific way that makes it hard to stop getting worse. A voluntary agreement among the three primary warring parties is very difficult due to a lack of trust among them, which is another way of saying no easy offramp. You might hope that rational actors would find the exit, but the defining feature of this particular standoff is that the exits are locked from the inside. Markets, naturally, are trying to price all of this at once. Brent spiked 5% earlier this morning, then settled back to roughly 1% above Friday's close after Tehran responded. The pattern is familiar: a sharp move on escalation, a partial retracement on the theory that things probably won't get maximally bad, and then everyone sits around waiting for the next headline. Meanwhile, significant volumes of crude are exiting the Strait of Hormuz in small vessels going dark (AIS beacon off). ADNOC awarded a tender for crude and is planning a second tender. On the supply side, the US is drawing down its strategic reserve at roughly 1.1 million barrels per day. As of June 5, the reserve stood at 349.2 million barrels, closing in on the 346 million barrels 40-year low point set during the Biden administration. You do not want to be approaching your all-time strategic low during an active conflict in the world's most important oil chokepoint, but here we are. The broader macro backdrop does not help. The jobs report showed that the US economy is running quite hot, which means persistent inflation and no hopes of rate cuts. Higher energy prices feeding into an already hot economy is the scenario where the Fed has no good options, only a menu of bad ones arranged by severity.
Here is what your weekly spend looks like right now.
Gas (per gallon): $4.30, down 3.80% on the week
Groceries (CPI food at home): 345.20, up 0.49% on the month
Eating out (CPI food away from home): 348.35, up 0.50% on the month
Average hourly earnings: $37.53, up 0.32% on the month