Falling confidence in the U.S. economy—and in the durability of a U.S.-anchored political order—is weighing on the dollar while sending traditional “safe haven” assets to fresh highs.
The U.S. Dollar Index, which tracks the currency against a basket of major fiat peers, has dropped sharply in recent days and is now down more than 10 percent from the same time last year. Silver has climbed as well, and gold has moved even faster—clearing the $5,000-per-ounce mark over the weekend for the first time, far sooner than many bullish forecasts expected.
Analysts say the two moves are linked—but not in the simple cause-and-effect way often assumed.
“Gold and the dollar are reacting to the same diagnosis: political uncertainty, lower real rates, and fading confidence in U.S. policy direction,” Ewa Manthey, a commodities strategist at ING, told Newsweek. “The dollar’s slump isn’t causing the gold rally—they’re two symptoms of the same macro story.”
Why It Matters
A fiat currency’s strength is shaped by many forces, but confidence in the issuing country’s institutions and policy credibility remains central. Extended weakness can ripple through the economy by altering trade dynamics, raising import costs and feeding inflation. At the same time, it can increase demand for assets perceived to sit outside national political systems—most notably gold.
What To Know
Market watchers point to a widening “confidence gap” around the dollar and the broader monetary order.
“Precious metals have extended their rally into the new week, offering further evidence of a deepening crisis of confidence in the U.S. dollar and the broader monetary order,” Daniela Hathorn, senior market analyst at Capital.com, wrote in a press note on Monday.
“Central banks, particularly outside the Western bloc, have continued to diversify reserves away from the dollar, lending structural support to gold prices,” she added.
Analysts also cite longer-running concerns: America’s fiscal outlook, rising debt levels, and questions about the Federal Reserve’s independence amid executive-branch pressure have gradually softened perceptions of U.S. stability—dragging on the currency.
Economist Robin Brooks argues the latest leg lower has a specific catalyst. According to Brooks, “markets drew the line last week on Greenland,” and renewed threats from Donald Trump to purchase or annex the Danish-owned territory have contributed to the most recent, sharp decline.
In a post to Substack on Monday, Brooks said the “perception of policy chaos” echoed the fallout from Trump’s “Liberation Day” tariffs, which also coincided with a slide in the dollar. He argued markets are now worried that “the fight over Greenland and the chaotic manner in which this was handled will backfire on the U.S.”
While Trump has ruled out using military force to acquire Greenland and has walked back tariff threats against countries opposing the idea, Adrian Ash, director of research at the gold trading platform BullionVault, told Newsweek that recent events have still fueled uncertainty—creating several “question marks and doubts over U.S. supremacy.”
Ash said those doubts were reflected in Mark Carney’s recent remarks at the World Economic Forum (WEF), where the Canadian Prime Minister argued that the rules-based, U.S.-led global order—while perhaps always a convenient fiction—has now ended.
Tariff and annexation rhetoric has also revived talk of a “Sell America” trade, as some foreign investors and sovereign institutions began reducing exposure to assets such as U.S. Treasuries amid “fears of prolonged uncertainty, strained alliances, a loss of confidence in U.S. leadership,” IG market analyst Tony Sycamore told Reuters last week.
Adding to the pressure is the possibility of U.S. action to support the Japanese yen, after officials signaled that coordinated intervention—selling dollars to strengthen the yen—could be on the table.
What People Are Saying
Raphaël Gallardo, chief economist at asset management firm Carmignac, told The Guardian in mid-January: “Investors—private and sovereign—believe their strategic reserves are no longer safe in dollar terms, as they can be confiscated overnight. The dollar is losing the credibility as the nominal anchor of the global monetary system because the Fed is losing credibility, and U.S. Congress is losing its credibility.”
Robin Brooks wrote: “What’s fascinating is what markets react to and what they ignore. They ignored various assaults on the Fed, including efforts to remove Lisa Cook and the threat of criminal indictment of Chair Powell. That’s remarkable, but—as people say in markets—it is what it is. But markets drew the line last week on Greenland. The Dollar fell very sharply in a move that looks like it’s still building.”
What Happens Next
In the near term, analysts say attention will shift to the Federal Reserve’s next rate decision and Chair Jerome Powell’s press conference, which could provide a short-term tailwind for the dollar. The central bank is widely expected to hold rates steady following its meeting on January 27 and 28.
