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Gold recorded its best week in nearly 20 years and the dollar recorded its worst week since May, after the Greenland crisis forced investors to seek safe alternatives to the US currency amid new concerns over erratic White House policymaking.
The precious metal hit a record high of nearly $5,000 per troy ounce on Friday, while silver rose above $100 an ounce for the first time.
“The world is reeling from continued uncertainty,” said StoneX analyst Rona O’Connell. “In times of fever, gold maintains its role as an asset of last resort.”
US President Donald Trump’s threat to impose tariffs on European allies if they resisted his demands for control over Greenland led to a massive selloff on Wall Street earlier this week, before his sudden reversal on Wednesday sent stocks soaring.
But the US dollar has struggled to make up some of its lost ground, with the currency’s index down 1.9 per cent against peers including the pound and euro this week, following a further decline on Friday.
Gold rose more than 8 percent, its biggest weekly price rise since the global financial crisis in 2008. Dollar weakness itself could boost gold and silver by making dollar-denominated metals cheaper to buy in other currencies.
The week’s gain capped a historic bullion rally of the past two years, driven by increased investor interest as well as central banks seeking to diversify away from the dollar.
Trump’s threat of tariffs on Greenland comes after the US ousted Venezuelan strongman Nicolas Maduro and the Justice Department launched a criminal investigation into Federal Reserve Chairman Jay Powell.
Seema Shah, chief global strategist at Principal Asset Management, said the events had led to “a slight change in mindset” about the dollar among investors.
“During all the different plays, there’s a little bit of damage happening on the sidelines,” he said. “This potentially adds to that narrative around diversification (away from US assets).”
The Greenland crisis has rekindled concerns about the political risks of US assets – long a safe harbor for global capital – which helped send the US dollar plunging 9 percent last year, its sharpest fall since 2017.
Investors described US threats against its NATO allies as “undermining” the institutional credibility of the world’s key asset market, along with concerns the White House’s attacks on the Fed.
US stocks, bonds and the dollar fell in unison earlier this week in an echo of the “Sell America” trade triggered by Trump’s tariff bans last April.
The Swiss franc, another long-time haven in FX markets, rose 2.8 percent against the dollar this week, its best performance since last April, according to LSEG. The euro rose nearly 2 percent this week to a high of $1.18.
“The credibility of the policy, or at least the credibility of the policy, has faded a bit,” Principal Shah said. “I think the forecast for dollar depreciation has probably become stronger.”
Wall Street was expecting the dollar to weaken further this year as the Fed continues to cut interest rates while other major central banks are expected to cut interest rates, and global investors continue to hedge their holdings of US assets against dollar fluctuations.
This hedging activity itself mechanically pushes down the value of the dollar.
But Peter Shafrick, global macro strategist at RBC Capital Markets, said the uncertainty created by Trump’s Greenland threats heightened the argument for investors to reduce their dollar exposure.
“What we’re seeing now is why (defenses) are needed, because these things can happen all of a sudden,” Shefrick said. “Who can guarantee that it won’t start at the same time tomorrow?”
Data Visualization by Ray Douglas
