(Kitco News) - President-elect Donald Trump’s ongoing tariff declarations continue to drive expectations that ‘America first’ policies will support the domestic economy, which, in turn, is pushing the U.S. dollar higher and gold lower.
The U.S. dollar index has managed to rally back above 106 points and is up 0.64% on the day, while February gold futures last traded at $2,668.30 an ounce, down 0.46% on the day.
Despite the current momentum in the U.S. dollar, some analysts have said that Trump’s proposed tariffs could have the reverse effect, driving the greenback lower and gold prices higher.
Over the weekend, Trump threatened BRICS+ nations with 100% tariffs if they moved away from the U.S. dollar and started trading with their own reserve-type currency.
“The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER," Trump wrote on social media on Saturday. “We require a commitment from these countries that they will neither create a new BRICS currency nor back any other currency to replace the mighty US dollar, or they will face 100% tariffs and should expect to say goodbye to selling into the wonderful US economy.”
BRICS nations have started developing international agreements that would settle trade in member nations' currencies; however, many economists and market analysts have said that the trading bloc is far from developing a new type of reserve currency.
“Let’s face it, a BRICS currency was never going to be a serious threat to the dollar’s unrivaled 80-year reign as the world’s reserve currency,” said currency analysts at Brown Brothers Harriman in a note Monday. “The dollar dominates as a store of value, medium of exchange, and unit of account. Moreover, the BRICS are not a coherent economic or political bloc, which is necessary to create and manage a common currency.”
In a comment on social media, independent economist Julian Jessop said that Trump’s latest threat highlights uncertainty surrounding the strength of the U.S. dollar.
“If the US dollar is so mighty and there is 'no chance' that [it] will ever be replaced (as what, exactly?), why are tariffs needed to protect it? Trump's threats are not exactly a vote of confidence!” he said. “What if other countries retaliate by dumping their holdings of US Treasuries—or simply threaten to do so? The US dollar and economy won't be so wonderful then (on top of course of the damage that 100% tariffs would do to the US itself)!”
Classic Trump... ??
1⃣ for a start, there are no credible plans to create a 'new BRICS currency'. At most, a little more trade is being conducted in alternative currencies that already exist. And while the share of international reserves held in US dollars has been trending… pic.twitter.com/ulR2pygGlM— Julian Jessop (@julianHjessop) November 30, 2024
While Trump’s tariff threats could be considered moot by some economists, others note that his comments on social media are further examples of how the U.S. government continues to weaponize the dollar, compelling many nations to diversify their foreign reserves and buy gold.
BRICS nations in particular have been significant gold buyers in the last two years after the U.S. and its Western allies imposed economic sanctions on Russia following its invasion of Ukraine.
In a recent interview with Kitco News, Chantelle Schieven, Head of Research at Capitalight Research, noted that a global trade war caused by tit-for-tat tariffs should continue to support gold as a hedge against economic uncertainty and because of its role as an important reserve asset.
“The U.S. dollar isn’t going anywhere anytime soon, but these threats will encourage central banks to continue to buy more gold and diversify away from the U.S. dollar,” she said.
Schieven said she doesn’t expect Trump to follow through on his tariff threats if a trade war impacts the U.S. economy.
“The further he pushes towards that, the faster the rest of the world is going to question the role of the U.S. dollar,” she said. “Gold remains the only real alternative to the U.S. dollar.”
However, not all analysts are optimistic that gold will be the winner in a global trade war. Ricardo Evangelista, Senior Analyst at ActivTrades, said that anything that could impact the Federal Reserve’s easing cycle could weigh on the precious metal.
“The prospect of the incoming Trump administration triggering a trade war that could reignite inflation, combined with the robust performance of the US economy, further reinforces expectations that the central bank will slow the pace of rate cuts,” he said.
