Trump TACO again, what is the cost?
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Trump announced a ceasefire between the US and Iran, and global risk assets surged in response. However, the unusual signal of gold rising simultaneously is warning investors: this time’s "TACO rally" is different from before, and the hidden cost behind it may be the accelerated expansion of cracks in the dollar’s credit.
On June 14, Trump announced that the US and Iran had reached a ceasefire agreement. The next day, global risk assets generally rose. The West Securities strategy team pointed out that the recent surge in US 10-year Treasury yields, which briefly broke above 4.5%, triggered liquidity risks that "forced" Trump to seek a ceasefire urgently. However, unlike last May when Trump paused the tariff war, this ceasefire agreement contains many unfavorable clauses for the US and fails to substantively constrain the Iran nuclear issue, which means the fundamental contradiction behind Middle East geopolitical risks remains unresolved.
What is more alarming is that gold prices rose alongside risk assets this time. This "resonance" signal deviates markedly from the market behavior seen when the tariff war was paused in May 2025. West Securities believes Trump’s urgency to withdraw from the US-Iran conflict actually sent a key message to the market: the US may no longer be able to maintain order in the Middle East unilaterally, the foundations of the "petrodollar" system are shaking, cracks in dollar credit may accelerate, and gold’s fourth "main rally" wave may thus begin.
Two TACOs, Totally Different Contexts
To understand the limitations of this ceasefire-driven rally, a comparison with the May 2025 tariff war TACO is necessary.
In mid-May last year, US Treasury yields broke through 4.5% and surged rapidly. Liquidity risks forced Trump to announce a delay in the global tariff war. At that time, the power to decide global tariff hikes lay fully with Trump; whenever he chose TACO, tariff war risks could be temporarily alleviated, Treasury yields quickly fell, and global risk assets soared in a "resonant rally."
This time, however, the situation is completely different.
The report points out that according to disclosures from Iran’s Mehr News Agency, the US and its allies must provide at least $300 billion for Iran’s national economic recovery plan, that is, so-called "war reparations," which adds significant uncertainty to subsequent negotiations. According to Xinhua citing Trump’s remarks on Tuesday, the US will not put any funds into Iran.
More importantly, easing Middle East geopolitical risk does not depend solely on Trump’s will—US constraints on whether Israel will escalate the situation remain to be seen, and whether the Strait of Hormuz can return to pre-war free passage mainly depends on Iran.
US Treasury Yields "Easy Up, Hard Down", Ceasefire Fails to Fix Key Contradictions
West Securities previously warned that unless the US can quickly resolve the US-Iran conflict, Treasury yields may be "easy up, hard down." Currently, this logic still holds true.
First, the Shia "resistance arc" formed by Lebanon-Iran-Yemen remains intact. One condition for the US-Iran ceasefire is to restrain Israel from attacking Lebanon, which currently seems difficult to implement.
Second, the Strait of Hormuz’s volume remains low, and restoring normal passage will take time.
More crucially, unless the US can effectively control the Strait of Hormuz, even if nominal free passage is achieved, major countries will still worry about Iran re-blocking the passage, likely leading to massive oil stockpiling operations. This means the spiral of high oil prices-high inflation-high US Treasury yields is hard to break in the short term, limiting the downside for US Treasury yields.
Dollar Credit Crack Expands, Gold's Fourth Wave May Begin
West Securities believes the deep impact of this US-Iran conflict is the shaking of the "petrodollar" foundation, which is key to understanding the unusual simultaneous rise of gold and risk assets. The institution explicitly points out that gold’s "fourth wave" rally may thus be triggered.
The institution has outlined three previous rounds of dollar credit crack expansions since 2016:
During the 2016 US-China South China Sea issue, the US tried to suppress the internationalization of the RMB to strengthen the dollar’s credit, but this loosened the "commodity dollar" system and gold prices surged against the trend during the 2016-2019 Fed rate hike cycle;
During the 2022 Russia-Ukraine conflict, the US sought to strengthen dollar credit by undermining Russia-Europe economic integration, but actually accelerated global central banks’ gold purchases,
with gold prices again rising against the trend during the 2022-2024 rate hike cycle.
In this US-Iran conflict, the US initially tried to boost global oil prices to reinforce the "petrodollar," but the substantive change in control over the Strait of Hormuz has instead shaken the petrodollar’s geopolitical foundation in the Middle East. West Securities notes that deindustrialization’s weakening of US military capability is the main reason for the continued expansion of dollar credit cracks, and every attempt by the US to repair dollar credit actually accelerates its expansion.
Trump’s urgent TACO to exit the US-Iran conflict highlights the fragility of liquidity in US Treasuries, the dollar, and US equities, officially signaling to the market: Following the loosening of the "commodity dollar" system, the "petrodollar" system may soon loosen as well.
Based on this assessment, West Securities recommends focusing asset allocation on the "AI + price-increase" bull market barbell strategy.
On one hand, monetary policy remains loose, AI has not yet reached bubble status, but investors must accept the high volatility of AI computing hardware (communications equipment, semiconductors, storage, etc.); on the other hand, Fed QE may present an opportunity for domestic debt restructuring and balance sheet repair. Investors should capture the PPI price hike chain (coal, oil, chemicals, new energy), and patiently wait for the CPI price hike chain driven by balance sheet repair in the second half (real estate, liquor, etc.).
Risk Warning and DisclaimerThe market has risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, views or conclusions in this article are suitable for their own circumstances. Invest accordingly at your own risk. ```