USD - Safe Haven in Decline
The dynamics between gold and the US dollar (USD) have long been a focal point in global finance, particularly as reserve currencies face decline.
Historically, the decline of a reserve currency has coincided with shifts in global economic power, manufacturing leadership, and military strength. This article explores the implications of the US Dollars potential decline, the role of gold, and the impact of emerging economic blocs like BRICS.
Reserve currencies have shifted throughout history, often tied to the rise and fall of global powers. A notable example is the British pound, which dominated in the 19th and early 20th centuries. Its decline began with the waning of the British Empire after World War I and accelerated post-World War II, as the USD emerged as the new leader under the Bretton Woods system. The pound's value relative to the USD dropped significantly, reflecting Britain's reduced economic influence. This transition was gradual, spanning decades.
Another historical case is the Spanish doubloon, which lost prominence as Spain's global power diminished in the 17th and 18th centuries. During both of these periods, gold often served as a safe haven, with its price rising as confidence in the declining currency waned, a pattern that may be repeating with the USD today.
The USD has been the dominant reserve currency since 1944, but recent data indicates a decline. Its share in global foreign exchange reserves has dropped from approximately 70% in 1999 to 58-59% by the fourth quarter of 2022, according to the IMF Dollar share in global forex reserves 1999-2024. This decline is evidenced by several factors, most notably the rise of economies like China and India which is leading to increased use of other currencies, such as the Chinese renminbi, in international trade. China's foreign exchange reserves, largely in USD, are over $3 trillion, but its push for the renminbi's global role is notable, especially in oil trade with Saudi Arabia and Russia.
The US has increasingly used, and I would argue abused its financial dominance, including financial sanctions and control over SWIFT, to impose financial pressure and coercion on a range of countries, most notable in recent history is Russia post-2022 and even with Ukraine in the first Trump administration. This financial market "weaponisation" that has been the go to for the USA for decades is now undoubtedly driving countries like Russia and China to develop alternative payment systems, further challenging the USD's dominance and accelerating its decline as a reserve currency. However importantly, these countries are not alone, while they might be the only ones large enough to develop alternative payment and financial systems to the USA, there are many smaller countries tied of being beaten over the head by USA financial and sanction weaponisation that are willing to support a new system.
The USD has long been seen as the ‘go to’ safe haven during economic uncertainty due to the US's large and stable economy, and deep financial markets. However, its declining reserve status might erode this perception over time, as many countries are seek alternatives from the well trodden historical path. As a major facilitator of global trade, most international transactions are settled in USD, but increasing non-USD settled trade, especially by BRICS nations, could reduce its role, potentially leading to a weaker USD and increased market volatility.
Central Banks and Gold
Prior to the new Trump 2.0 administration many central bank countries saw the writing on the wall and have been buying gold to diversify reserves, hedge against inflation, and reduce reliance on the USD. The new US Government administrations love affair with tariffs, redrawing historical trade agreements and upending the geopolitical landscape in operation for last four decades has put everyone on notice. Recent data shows significant gold purchases, with China and India leading, reflecting a trend of repatriating gold to bolster national reserves. The demand for gold is so great right now that long holders of gold futures are not settling these futures contracts or rolling them forward but taking delivery of the physical gold.
London is been the world’s primary centre for physical gold trading, with the London Bullion Market Association (LBMA) accounting for roughly two-thirds of worldwide physical gold trading. New York, on the other hand, is a hub for futures trading, with significant COMEX inventories. Recent events, such as US President Donald Trump’s tariff threats, have triggered a mass movement of gold from London to New York to settle futures contracts, leading to shortages and delays in London’s market. Lets say you have gold stored in the Bank of England and that now needs to be delivered against a COMEXC gold futures in NYC, there’s currently a delay of up to four weeks to get it configured into deliverable format and released from the Bank of England vault. This is due to a shortage caused by significant shipments to the US, driven by political fears and tariffs. It would also appear some central banks are long gold futures, and want delivery. Could it be the USA restocking? or BRICS countries - there is certainly not the transparency to tell.
Where is Gold's Appeal
So why is Gold so important? It has historically been a store of value and a hedge against inflation, historically gaining appeal and financially performing well when reserve currencies decline. Recent trends show central banks significantly increasing gold purchases, with global official reserves rising by a net 290 tons in Q1 2024, the highest since at least 2000 (Central Banks | World Gold Council).
Central banks bought over 1,000 tons annually in 2022 and 2023, with 2024 on track for similar levels. Emerging markets leading this buying with China adding 225 tons in 2023 and India continuing its buying streak. Its interesting that these two countries are also the largest two in the BRICS group.
The relationship between the USD and gold is inverse; as the USD weakens, gold prices tend to rise, with gold increasing 13.68% in 2025 so far, reaching above $2,900 per ounce by February 2025. This trend is driven by the USD's perceived decline and gold's role as a safe haven, particularly amid inflation and the Trump administration stoking geopolitical tensions with allies and adversaries alike.
Why BRICS Will Have Huge Implications
The BRICS bloc, comprising Brazil, Russia, India, China, South Africa, and new members like Saudi Arabia and Iran, now accounts for approximately 28% of global GDP, based on 2023 figures of $105 trillion global GDP and BRICS+ at around $30.8 trillion. This economic weight is pushing for non-USD settled trade, impacting demand for the USD.
The emerging market BRICS' nations share, at 35.6% in PPP terms by 2022, is set to continue to grow. With robust economic growth in emerging markets likely to outpace the western alliances and USD dominant trade routes this will naturally shift global political and economic policies, reducing overall US and USD dominance.
Non-USD Trade will continue to pushed by a combination of sanctions, tariffs, trade wars and countries like Russia, China and even Saudi Arabia who are increasingly settling trade in non USD currencies, with the renminbi's share in intra-BRICS trade at 47% by 2022. This reduces demand for USD, potentially weakening its role in global trade. No wonder Trump wants a 100% tariff on any BRICS countries.
Given we have the most unstable Geopolitical landscape in the last four decades the US's sanctions, and now tariffs have accelerated this USD decoupling, with BRICS exploring alternatives like a common currency, challenging the USD's facilitator role.
Its hard not to see the likely continued decline of the USD as a reserve currency, as trust wanes, the USD may lose its appeal as the save haven and safe port in stormy weather, with gold and other currencies gaining in favour. Recent central bank actions suggest a move towards diversification, away from the USD's safe haven role.
The irony here for the US is the more they use threats of financial, trade war coercion, tariffs, sanctions and SWIFT access, while effective, risks alienating allies and adversaries, and pushing them closer to a multipolar currency system. This could see the euro, renminbi, or even a BRICS currency gaining ground, a shift that might take decades but is undoubtedly already underway.
Conclusion
Dont count out the USA its a powerhouse, however the reality is also clear, USD's role as a reserve currency is undeniably waning, driven by economic shifts, poor geopolitical strategies, and the rise China and India and of blocs like BRICS. Gold will continue its ascent as a safe haven, with central banks, particularly in emerging markets, increasing holdings to hedge against USD risks. The growing influence of BRICS, with their push for non-USD trade, will further challenge the USD, potentially leading to a more multipolar global financial system. While the USD will remain significant, its decline mirrors well known and expected historical patterns and economic theory, suggesting a gradual transition that could reshape global trade and finance over the coming decades.