BofA sees higher gold prices, likely to hit $5,000/oz in 2026
“Carrymania”
The US dollar is once again the belle of the global funding ball — the low-volatility temptress luring traders back into the oldest seduction in markets: the carry trade. Borrow cheap in yen or francs, park it in the greenback, clip the spread, repeat. It’s the sort of rhythm that hums until it howls, and right now, the hum is intoxicating.
Goldman’s preview of October’s payrolls — a headline drop of roughly 50,000 jobs due to deferred government resignations — might argue for a weaker dollar in textbook theory. But theory rarely survives contact with the funding desk. The real story is liquidity preference. The yen’s slide to a nine-month low and the Aussie’s knee-jerk pop are just surface ripples in what’s become a global re-pricing of risk premia. Currencies are not trading on data — they’re trading on mood rings.
When the Senate cracked the gridlock over the shutdown, risk markets exhaled. The Aussie, the beta barometer of global animal spirits, shot up 0.7% before giving back half its gains. The yen, meanwhile, stayed pinned as Japan’s new PM Takaichi practically told the BOJ to tiptoe on hikes while Powell & Co. tap the brakes on cuts. That’s a recipe for relentless carry divergence — the classic “borrow Tokyo, buy Washington” dynamic that has underwritten more market blowups than most care to remember.
The mechanics are simple but seductive: as US yields hold aloft and volatility ebbs, the dollar becomes a high-carry asset with none of the stigma of an emerging-market bet. Bloomberg’s math shows that, on a risk-adjusted basis, long-dollar carry outperforms European equities and Chinese bonds. Even the so-called “Sell America” crowd has been forced to eat its slogan. The dollar, down 7% on the year, has already clawed back 3% from the lows — a reminder that reserve status doesn’t fade with one election cycle.
But every carry boom plants the seeds of its own reckoning. The smoother the ride, the more crowded the train. The government shutdown muted price swings, shrinking implied vol and making it almost too easy to fund in yen and load up on dollar assets unhedged. That’s the calm that comes just before traders start noticing how little they’re being paid for the risk they’re warehousing.
And that risk is growing in disguise. Equity markets are priced for perfection, powered by the AI-halo and abundant liquidity. The S&P 500’s earnings yield has fallen below the 10-year Treasury — meaning equities offer zero risk-adjusted return if you’re funding them conventionally. In contrast, the dollar carry still spits out half a percent per unit of volatility. Traders, rational to a fault, will chase that math until it breaks.
The danger, as always, is that when it does break, it won’t do so politely. A 10% drop in U.S. stocks — entirely plausible in a world this levered — would force carry positions to unwind violently. The same dollar that feels like safe yield today could morph overnight into a margin call on global liquidity. I’ve seen that movie before, and I’ve no appetite to star in the sequel.
So while the textbooks whisper “short the dollar” on softer payrolls, the tape is singing a different tune — one of seductive stability and suppressed fear. The dollar is paying you to believe in its calm, but the trade is just picking up nickels in front of the freight train.
And the train, as ever, is already whistling.
US Dollar’s Shadow Army: How Stablecoins Became Washington’s Most Loyal Mercenaries
There’s an irony at the heart of today’s monetary machine: the United States, long the high priest of fiat orthodoxy, has outsourced part of its monetary circulation to a network of private actors it once tried to suppress. By blessing stablecoins through the GENIUS Act, Washington has effectively turned free-market code jockeys into the newest class of Treasury dealers. It’s fiscal outsourcing disguised as innovation — the government’s latest sleight of hand in its long struggle to finance itself without losing face or control.
America’s fiscal plumbing is leaking at every joint. Deficits north of six percent of GDP have become structural, not cyclical. Interest payments now rival defense spending. Every uptick in yields adds another brick to the nation’s debt wall. With Beijing and Tokyo quietly trimming their Treasury holdings to prop up their currencies and economies, the U.S. needed a new buyer class. It found one — not in sovereign funds or pension giants, but in the algorithmic underworld of digital dollars.
Stablecoin issuers now behave like private mini-central banks — minting digital dollars backed by short-term Treasuries and cash, skimming the carry while providing the illusion of stability. Every USDC or USDT minted is a Treasury purchase in disguise; every redemption is a micro-quantitative tightening. The GENIUS Act simply put a flag on a phenomenon that had already become systemic.
For the US government, this approach is both clever and a sign of urgency. By turning global demand for digital dollars into steady demand for Treasury bills, Washington has found a new source of funding that does not rely on the Federal Reserve. The stablecoin sector now holds about $150 billion in U.S. debt, similar to a mid-sized foreign creditor, and this amount is growing quickly. This demand is steady, not sensitive to price, and driven by the world’s need for fast-moving liquidity.
But this lifeline comes with a quiet loss of sovereignty. These digital dollars live beyond the Fed’s immediate reach. They clear outside the traditional banking rails. Each token is fully collateralized — no fractional illusions, no bank runs to backstop. That’s precisely why they work — and precisely why they dilute the Fed’s traditional control over credit and liquidity. Stablecoins are to fiat what the eurodollar once was to Bretton Woods: a breakaway republic that still flies the old flag.
The contrast with a U.S. central-bank digital currency is stark. A CBDC would grant Washington omniscient oversight — perfect compliance, perfect surveillance, and zero privacy. However, it would also be sterile capital: a government liability circulating within its own confines, doing nothing to attract external investment. Stablecoins, by contrast, pull global savings into Treasuries — a win-win for fiscal survival and market evolution.
So the Fed finds itself in an awkward ménage à trois: one partner is fiscal profligacy, the other is algorithmic discipline. The central bank may still set the cost of money through Treasury yields, but it no longer has a monopoly on the plumbing. Liquidity now flows through open channels that obey code, not command.
What emerges is a strange hybrid — a system where the dollar remains the lingua franca of global trade, yet its issuance is increasingly privatized, collateralized, and market-regulated. Fiat, yes, but with training wheels of hard collateral. A dollar born of Washington’s deficit but sustained by global demand for digital safety.
And that’s the paradox of our age: the more the U.S. relies on stablecoins to fund itself, the more it cedes control of the dollar’s circulation to private balance sheets and offshore code. Yet perhaps that’s the discipline the empire needed — not a fiscal reckoning through crisis, but a slow rebalancing through innovation.
In this light, Bitcoin is less a rival than an anchor — the philosophical north star of this emerging order. Stablecoins orbit it like satellites, each tethered to real Treasuries yet gravitationally pulled toward the harder money ideal.
The old system was built on trust in government. The new one runs on trust in collateral — a quiet revolution in the architecture of money. Washington may have found its new buyers, but it’s also awakened the free-market genie it can’t put back in the bottle.