(Kitco News) - As the U.S. dollar begins 2025 on firm footing, questions linger about how long this strength can persist against the backdrop of mounting debt and shifting global capital flows. The greenback has been buoyed by resilient economic indicators and elevated Treasury yields, but macro strategist Tavi Costa of Crescat Capital warns that this dominance may soon falter. Speaking to Kitco News as part of its Outlook 2025 coverage, Costa explains why he sees a critical turning point for the dollar this year and highlights the implications for gold, silver, and global markets.
The U.S. dollar’s strength has been a defining feature of global markets in recent years, supported by steady capital inflows into U.S. assets. However, Costa sees a structural shift on the horizon, driven by unsustainable fiscal policies.
“One of the biggest traits for 2025 is the peak of the U.S. dollar versus other fiat currency,” Tavi said. “Not only against tangible assets but really against other fiat currencies. This would happen in the first or second quarter of 2025. This is going to be the beginning of a major trend that will drive other markets outside of the West to a degree that we haven't seen in a very long time.”
According to Costa, historical dollar cycles offer valuable insights. Using 10-year rolling changes as a proxy, he highlights how long-term cycles have alternated between dollar appreciation and depreciation.
The dollar’s strength has had mixed consequences. While it has helped temper import prices, it has also strained U.S. exporters and multinational corporations by reducing the competitiveness of their goods and services. Moreover, Costa argues that the aggressive fiscal expansion pursued by the U.S. is creating vulnerabilities that could accelerate a reversal.
“Valuations in the U.S. are larger than in 1929 right before the great depression. Why are people thinking that there's a lot more value here? It wouldn't surprise me at all if we see a big shock at the beginning of 2025,” he said. “I'm really worried about risk, and that that's going to translate to a lower dollar. And that's going to be the next chapter of macro in the following years.”
For investors, the potential peak in the dollar presents opportunities in tangible assets like gold and silver. Costa highlights gold’s performance as a hedge against fiscal irresponsibility and currency devaluation. “Gold’s appeal is only growing as central banks continue to increase their purchases,” he says, referencing the recent surge in central bank demand for the yellow metal.
Meanwhile, he sees silver as an underappreciated opportunity. “The gold-to-silver ratio is sitting at 83-84. We don't tend to see those things last when there is a real bull market in gold. Silver has a dual role as a monetary and industrial metal. There's a huge potential to see historical prices. I can't help but be laser-focused in owning assets that have exposure to silver.”
Costa also draws attention to global markets, where opportunities may be emerging as capital flows diversify away from U.S. equities, including markets in Japan, India, and South America.
Inflation and interest rates remain critical variables in this equation. Despite progress in bringing inflation down from its 2022 highs, Costa warns that structural issues, such as deglobalization and underinvestment in commodity production, are likely to keep inflation elevated.
However, he does see the Federal Reserve cutting rates dramatically. “They're going to be forced to cut rates. If there is any type of shock in the market, they're going to take that opportunity to cut rates even further. In the next six months, we may see interest rates from the Fed be drastically lower,” Costa added.
For an in-depth discussion and more insights from Tavi Costa, be sure to watch the full Kitco News interview above.
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