Gold prices have skyrocketed 52% this year, sparking a debate among financial experts about what’s really driving the rally. Is it inflation, central bank policy, or a deeper geopolitical shift? In a recent discussion on “Kudlow,” host Larry Kudlow and Wall Street Journal journalist John Carney suggested that China’s growing role in the global gold market is a major force behind the surge — and that Beijing actually wants gold prices to keep rising.
Art Laffer, speaking earlier on the show, argued that President Donald Trump’s supply-side economic policies will eventually lower inflation and gold prices in the next few years. However, Kudlow and Carney believe the data tells a different story. Despite gold’s dramatic rise, U.S. bond markets show no signs of inflationary pressure.
The 30-year Treasury yield started the year near 5% and remains slightly below that, while the 5-year forward inflation rate is steady at around 2.30%. “If you think gold is an inflation call, bonds are saying it’s not,” Kudlow said.
According to Carney, the gold rally started as an inflation hedge when the Federal Reserve cut rates by 50 basis points last September. But its persistence is now being fueled by central banks — especially China — buying gold in large quantities. “Central banks all around the world are buying gold,” Carney explained. “A big part of that is because of what happened to Russia. When we imposed financial sanctions, it made countries realize their assets could be frozen at any time. Gold can’t be frozen.”
This is where China’s strategy comes in. Beijing has been diversifying away from the U.S. dollar and U.S. Treasuries, reducing its holdings from $1.3 trillion in 2012 to about $730 billion today. That’s nearly a 50% reduction in exposure to American debt.
Carney said this move is both economic and strategic. “China would love to see gold go even higher,” he noted. “They have a lot of gold, they’re big investors in it, and it gives them more power in a dollar-dominated world. Plus, when they buy gold, it pushes more yuan into the market, weakening their currency — which actually helps their exports.”
Kudlow added that this trend reflects a larger shift in global trust and power. “The gold explosion says more about the dollar and American strength around the world than about inflation,” he said. “Some people don’t like us, and they want a hedge. They want insurance in case the U.S. isn’t the world’s only leader anymore.”
Carney agreed, warning that the U.S. must reinforce its credibility as the world’s financial leader. “The job of U.S. leadership should be to teach the rest of the world that we are the trustworthy leader. You cannot trust China,” he emphasized.
Kudlow concluded that Treasury Secretary Scott Bessent should speak out in support of a strong dollar — echoing the historic “King Dollar” policy that once anchored global economic confidence. “We need to hear more about gold, the dollar, and commodities from Treasury,” Kudlow said. “Those are the messages that keep the U.S. leading.”
Disclaimer:
This article is based on commentary from financial experts and journalists. It is for informational purposes only and should not be considered investment advice. Readers should do their own research or consult with financial professionals before making investment decisions.
