The US dollar has long been perceived as a “safe haven” asset during periods of discord; true to form, the greenback has rallied since the onset of war in Iran. Making a structural case in favor of the dollar is more challenging, however.

Though the dollar has fallen 10% since the start of 2025 after a long period of strength, we’re open to the possibility that we may be in only the early stages of a weak-dollar period once geopolitical conditions normalize. The dollar remains about 15% above its long run average, and there are a number of dynamics that suggest continued reversion to the mean is possible.¹

On the policy side, cuts to the federal funds rate have compressed interest-rate differentials and pressured the dollar. At the same time, a US fiscal deficit that is historically outsized relative to unemployment and for which political will to consolidate is lacking may promote structurally higher inflation and debasement of the currency.²

Meanwhile, dollar support from foreign investment in the US may wane as rich US equity market valuations, US overweights in foreigners’ portfolios, and increasing US-centric risk encourage repatriation or smaller investment flows into the US. At the same time, lower interest rate differentials make hedging US dollar risk cheaper, potentially encouraging more hedging and weighing on the dollar. These same factors may prompt domestic US investors to increase foreign allocations in pursuit of more attractive opportunities in markets abroad. Notably, international markets historically have tended to outperform during periods of dollar weakness; to wit, the MSCI World ex USA Index returned 32.6% in 2025 compared to the 17.9% gain of the S&P 500 Index.³

Geopolitical tensions and the potential for financial weaponization have also called into question international reliance on the dollar. For example, freezing Russia’s access to dollar-denominated reserves following its invasion of Ukraine in 2022 appeared to trigger a shift in central banks’ appetites toward more politically neutral assets. Having averaged around 470 tonnes per year from 2010 to 2021, central bank gold purchases averaged more than 1,000 tonnes per year from 2022 to 2025, and gold holdings now exceed Treasuries as a share of foreign reserves for the first time in 30 years.⁴

The price of gold initially rose following the February 28 outbreak of armed hostilities in the Middle East as investors flocked to perceived “safe havens.” However, the metal has subsequently declined—losing nearly 3% from March 2 to March 11—even as other “safe haven” assets, most notably the US dollar, continued to rally.¹ History suggests this volatility amid tumultuous conditions is not atypical.

With a near-total shutdown of shipping traffic through the Strait of Hormuz—through which approximately 20% of global oil and liquified natural gas (LNG) passes—Brent crude oil prices spiked to nearly $120 per barrel on March 9, highlighting the potential global inflationary impact of this conflict.² In response, options markets have reined in their expectations for 2026 federal funds rate cuts, and the resulting higher-for-longer policy rate scenario has pushed real interest rates higher, a classic headwind to the gold price.³ The rebound in the US dollar, an effective unwind of the popular dollar-devaluation trade, has further constrained gold.⁴

Technical factors also may be adding incremental price pressure. Investors in search of liquidity in the face of market stress often look to an easily salable asset like gold, and its performance of late makes profit taking particularly enticing. Gold has more than doubled in price over the past two years and is still up 20% year to date despite its volatility over the past week-plus.⁵

While there are multiple factors that could continue to weigh on gold in the near term, we continue to view the potential for recession as the key risk. Even though recessions historically have been positive for gold over the medium to long terms, their onset can be a short-term negative, as we most recently saw during the brief but sharp Covid-related recession in 2020 and the 2008–09 recession associated with the global financial crisis. In both instances, however, gold’s value as a potential hedge against adverse events ultimately reasserted itself after an initial period of price weakness.⁶