On Monday gold broke yet another record by crossing the $3,400 mark. The precious metal is now by far the best performer in financial markets, touted by some as the “best performing asset of the 21st century”. The main driver in the near term of the gold price is the impact of Trump’s trade policies which have rattled markets, but the longer-term trend seems to be due to aggressive de-dollarisation setting in.

The US dollar is on its longest losing streak since 2015 and it seems likely that the currency only has further to fall. When the Biden administration seized Russian reserve assets after the invasion of Ukraine, chatter started to build that this may be the beginning of the end of the US dollar’s status as the world’s single reserve currency. It now appears that, partly due to their trade policies, the Trump administration is actively embracing the end of US dollar hegemony.

In early April, Stephen Miran, the Chairman of the Council of Economic Advisers gave a speech criticising the “reserve function” of the dollar, noting that it had “caused persistent currency distortions and contributed, along with other countries’ unfair barriers to trade, to unsustainable trade deficits”. He continued: “These trade deficits have decimated our manufacturing sector and many working-class families and their communities, to facilitate non-Americans trading with each other”.

Many in the markets took this to mean that the White House was consciously moving in a direction that would eliminate the reserve status of the US dollar. This is leading to unusual dynamics in American financial markets. For example, in normal times when investors get nervous, they move their money out of stocks and into US treasury bonds. This is known as a “flight to safety”. But right now, bonds and stocks are selling off simultaneously, suggesting investors no longer see US assets as safe.

The rapidly increasing gold price is the flip side of this sell-off. Since investors are losing faith in the US dollar and dollar-based assets, there are few other places to put their money except in precious metals. What we are witnessing, then, is not a temporary event, but the start of a structural shift in the global monetary system.

Miran is correct that the reserve status of the US dollar is deleterious for the American economy. It encourages overconsumption and underinvestment and has become an albatross around the country’s neck. But unwinding dollar hegemony will be painful. As the dollar falls, Americans’ ability to buy imports will shrink, and living standards will decline as prices rise.

This likely would have happened eventually as the dollar lost its lustre. But the Trump administration’s trade policies and rhetoric are accelerating the process. The Fed is preparing to raise interest rates to curb inflation. The White House, on the other hand, wants the Fed to lower rates and is attacking Fed Chair Jerome Powell over it.

The genie is now out of the bottle. The Trump administration seems to be willing to stand behind its high-risk economic strategy. Even if it tries to reverse course, it may be too late. The US is finally facing a long-overdue rebalancing. But the Trump administration’s aggressive approach means the impact will be felt acutely by consumers. For better or worse, America is being dragged into the reckoning it long tried to avoid.

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