The dollar fell, the yen surged, spot gold exceeded $5,000, and U.S. natural gas futures prices rose 16%

# Source: Wall Street Insights

By Long Yue

Global markets have been engulfed in a risk-off frenzy, with spot gold breaking above $5,000 per ounce for the first time in history, driven by geopolitical turmoil and the "credit debasement" trade. Meanwhile, the Federal Reserve Bank of New York’s rare move to "inquire about prices" has sparked strong expectations of a joint US-Japan intervention in the foreign exchange market, fueling a sharp rebound in the Japanese yen. Combined with the surging 75% probability of a US government shutdown by the end of the month, investors are accelerating their flight from risky assets, leading to a marked rise in volatility across global financial markets.

Global markets opened Monday with violent fluctuations, as geopolitical risks, US fiscal gridlock and threats of forex intervention triggered intense safe-haven trades. As investors’ confidence in sovereign bonds and fiat currencies wavered, capital flooded into the precious metals market, pushing spot gold past the $5,000 per ounce mark for the first time ever, while the yen staged a strong rebound on intervention expectations.

Market movements have exhibited extreme risk-off characteristics. As of press time, spot gold rose 0.81% intraday to stand at $5,029.05 per ounce; spot silver once breached $106 per ounce, posting an intraday gain of nearly 3%. In the forex market, the US Dollar Index fell 0.52%, with USD/JPY plunging as much as 0.89% to 154.32 amid intervention expectations, and is currently trading around 154.77. EUR/USD climbed 0.52% to 1.1888.

At the same time, risky assets came under pressure, with Nikkei 225 index futures falling 2.6% at the open. Nasdaq futures dropped over 1% in early trading, while S&P 500 index futures declined 0.75%. Additionally, hit by winter storms, US natural gas futures prices skyrocketed 16%.

The core logic behind this round of market turmoil lies in US President Trump’s measures to reshape international relations, his ongoing attacks on the Federal Reserve’s independence, and the surging risk of a US government shutdown at the end of the month—all of which are reshaping investors’ asset allocation strategies. The market is not only pricing in geopolitical risks but also trading on "currency depreciation" expectations, leading to capital outflows from traditional US dollar and Treasury assets.

Meanwhile, the game in the exchange rate market has entered a white-hot stage. The Japanese government’s tolerance for yen depreciation has hit rock bottom, and the Federal Reserve’s rare move signals that the US may tacitly approve or even assist Japan in forex intervention. This potential policy synergy is forcing yen short-sellers to retreat, becoming a key variable dominating the forex market in the short term.

## US-Japan Joint Forex Intervention "on the Brink"

The yen’s recent strong rebound is mainly due to the sharply rising market expectations of a joint US-Japan forex intervention. According to Bloomberg, the Federal Reserve Bank of New York called financial institutions last Friday to inquire about the yen exchange rate—a move widely interpreted by Wall Street as a precursor to intervention.

"Exchange rate checks are usually the final warning before action is taken," said Michael Brown, senior research strategist at Pepperstone Group Ltd. He pointed out that the Sanae Takaichi administration has a significantly lower tolerance for speculative forex fluctuations than its predecessor. Japanese Prime Minister Sanae Takaichi explicitly warned on Sunday that the government "will take all necessary measures to address speculative and extremely abnormal fluctuations".

Market analysis suggests that the US may give the "green light" to assist Japan this time not purely for exchange rate reasons, but out of concerns over the US Treasury market. Ed Al-Hussainy, global interest rate strategist at Columbia Threadneedle Investment, noted that the US Treasury Department may worry that violent fluctuations in Japanese government bonds could spill over into the US Treasury market, and is therefore exploring currency intervention as a stabilization tool. Leah Traub, portfolio manager at Lord Abbett & Co., also believes that if Japan needs more forceful intervention, "the US seems to be giving the green light".

However, Goldman Sachs remains cautious. Cosimo Codacci-Pisanelli, a Goldman Sachs trader, stated in a report that market intervention alone cannot resolve the root problem. Unless the Bank of Japan adopts a more hawkish stance or implements quantitative easing to stabilize the bond market, the yen and Japanese government bonds will still face pressure.

## "Crisis of Confidence" Drives Gold to $5,000

Gold’s epic rally reflects deep-seated fears in the market. According to Bloomberg, gold prices have doubled over the past two years and risen a further 15% so far this year. This is not only a hedge against geopolitical risks, but also a vote of no confidence by investors in "credit assets".

"Gold is the inverse of confidence. It is a hedge against unexpected inflation, unexpected market declines and outbreaks of geopolitical risks," said Max Belmont, portfolio manager at First Eagle Investment Management, bluntly.

Recently, a series of moves by the US government—including attacks on the Federal Reserve’s independence, threats to annex Greenland, and military intervention in Venezuela—have greatly rattled the market. This uncertainty has exacerbated the so-called "debasement trade", where investors pull out of currencies and government bonds and shift to physical assets. In addition, Trump stated that he has completed interviews with candidates for the next Federal Reserve Chair. The market speculates that if the new chair takes a dovish stance, it will further benefit gold, a non-interest-bearing asset.

## Shooting Incident Triggers Fiscal Gridlock, Government Shutdown Risk Soars

In addition to external shocks, US domestic fiscal stability is also facing a severe test. According to USA TODAY and Axios reports, the recent second fatal shooting involving a federal law enforcement officer (ICE) in Minnesota has become a "black swan" event in congressional budget negotiations.

Senate Minority Leader Chuck Schumer made it clear that given the incident, Democrats will refuse to advance the appropriations bill if it includes funding for the Department of Homeland Security (DHS). This position has been supported by several key Democratic senators, leading to the collapse of the previously promising budget agreement.

Data from market prediction platform Polymarket shows that the probability of another US government shutdown by January 31 has soared to 75%. This political gridlock has not only narrowed the negotiation time window, but also directly hit market confidence in US fiscal stability, further boosting risk aversion sentiment.

## Extreme Weather Ignites Natural Gas Rally

Amid the sharp fluctuations in financial assets, the commodities market has also been directly impacted by weather factors. As winter storms swept across the US, the market expects heating demand to surge sharply, driving US natural gas futures prices to skyrocket 16% in a single day. Although this volatility is mainly driven by seasonal factors, it has also increased the overall market volatility.

To be continued...

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