Dollar Risked Losing Safe Haven Status Amid Tariff Turmoil as Gold Soared to New Highs

The US dollar faced unprecedented pressure amid tariff-related turmoil earlier this year, raising concerns about its enduring reputation as a global safe haven. According to a report from the International Monetary Fund, foreign investors turned into net sellers of the dollar following President Trump’s so-called Liberation Day pronouncements, which unsettled international markets and fuelled uncertainty about American economic policy. This marked a significant departure from the historic trend, where investors have typically flocked to the dollar during turbulent times.

On 2 April, the dollar experienced a sharp decline as traders rushed to divest, anxious about escalating US protectionism. Many sought to hedge their positions against the risk of continued depreciation. The IMF noted that this period of sustained selling by overseas investors was more prolonged and persistent than in similar episodes, suggesting shifting sentiments in the global marketplace. Spot market demand for dollars surged, but not with the vigour demonstrated during episodes such as the pandemic shock.

The greenback fell by more than 10 per cent over the first half of the year, its largest slide in nearly fifty years. The velocity of this downturn eased only after the Trump administration instigated a temporary ninety-day pause on tariffs. Even so, concern remains high among major financial players. Ken Griffin, chief executive of Citadel, one of the world’s leading hedge funds, openly voiced fears that the dollar could lose its safe haven crown to assets such as gold.

Gold surged to a record high of $3957.60 per ounce this week, driven both by persistent worries about a US government shutdown and elevated inflation levels across developed economies. The ability of American authorities to wield dollar-based financial sanctions has also prompted foreign investors to seek alternative stores of value. Analysts at Goldman Sachs now predict gold could reach $5000 by the end of next year, as investors increasingly look to de-dollarise their portfolios in response to surging US sovereign risk.

Griffin remarked that retail investors globally have begun viewing gold as a sanctuary asset, occupying the position previously held by the dollar during periods of stress. While inflation remains stubbornly above target across key forecasts, the international financial community is now actively rebalancing to mitigate potential risks from overexposure to the dollar. The IMF has warned that the $10 trillion foreign exchange market is vulnerable to further shocks, emphasising the need for robust liquidity stress testing and scenario analysis to identify and address funding vulnerabilities in the sector.