Gold and De-Dollarisation:
Is the US Dollar Losing Its Safe-Haven Status?
The Royal Mint
Category: Invest
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Recent headlines around the US economy, government debt, and movements in the gold price may seem complex and unconnected at first glance. However, they may reflect some important trends shaping how countries, institutions, and individual investors think about risk, currency, and diversification.
If you’re wondering how developments like the US credit rating downgrade, rising bond yields, and increased central bank gold buying might affect global markets and safe-haven assets, this article seeks to shine a light on some of the big questions.
US Credit Rating Downgrade and Debt Concerns
On 16th May 2025, Moody’s – one of the major credit rating agencies – lowered the credit rating of the US government from AAA (the highest possible rating) to AA1 (one step lower). While this still represents a strong rating, it marks the first time Moody’s has made such a move. The other major rating agencies, Standard & Poor’s and Fitch, downgraded the US in 2011 and 2023 respectively.
Moody’s justified the move by stating that ‘successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs’. [1] The value of US government debt currently stands at over $36 trillion and is approaching 100% of GDP. [2] Interest on that debt is thought to cost US taxpayers around $2.6 billion per day. Moody’s forecast that by 2035 these interest payments are likely to represent as much as 30% of all US government income.
Just days after the move by Moody’s the US House of Representatives passed the ‘One Big Beautiful Bill Act’ which, among other things, cuts taxes and commits to more spending on defence and border security. The Congressional Budget Office estimate that the measures would add $2.3 trillion to the US national debt over the next 10 years , while other forecasts speculate that if the measures were made permanent, the cost could be closer to $5.8 trillion over 10 years. The bill will now go to a vote in the Senate, which is also controlled by Donald Trump’s Republican Party.
These developments had an immediate impact on the bond market. Government bonds, like US Treasuries, are one way for governments to borrow money. When investors think there’s more risk, they usually demand higher yields (or interest rates) to lend their money to the government. As a result, some US government bond yields recently rose to over 5%.
Between the beginning of 2025 and the 23rd May 2025, the DXY index (used for tracking the value of the USD against a basket of other currencies) has dropped by almost 9%, signalling that the US Dollar has weakened over this timeframe.
De-Dollarisation?
Recent events have also drawn attention to a broader, ongoing trend known as ‘de-dollarisation’. This refers to perceived efforts by some governments and central banks to rely less on the US Dollar in their foreign currency reserves.
According to the International Monetary Fund (IMF), many central banks are not simply switching from US Dollars to other traditional reserve currencies like the Euro or Yen. Instead, they’re adding more ‘non-traditional’ assets to their reserves — including the Chinese Renminbi, South Korean Won, and notably, gold.
In 2024, central banks added a net of 1,000 tonnes to their reserves for the third consecutive year. In the 10 years prior to the COVID-19 pandemic, the average was less than 500 tonnes per year, with demand never exceeding 700 tonnes in any single year.
Central bank gold buying isn’t confined to one particular group of countries. Rather, a diverse range of countries are all adding to their stockpiles. In 2024, the National Bank of Poland bought more gold than any other central bank. Poland’s non-Eurozone, central and Eastern European neighbours, Czechia, Hungary and Serbia also bought in significant volumes, as did Türkiye and Georgia. The major economic powerhouses of China and India added to their reserves. So did the traditionally ‘non-aligned’ states of Ghana, Oman, Qatar and Uzbekistan. Taiwan, Russia, Kyrgyzstan and Zimbabwe also bought. One can venture that the motivations of these countries to buy gold are as diverse as the countries themselves.
The IMF note that gold might appeal to central banks because, unlike currencies, it cannot easily be frozen as a result of sanctions, it is not (directly) subject to the political or economic decisions of any one nation, and it has historically performed well during periods of risk and uncertainty.
So, central bank gold demand looks strong, diverse and part of a longer-term trend.
What could this mean for gold?
As central banks and investors seek ways to manage risk and diversify their holdings, many are turning to gold. Although there's no certainty that gold will continue to perform its traditional role in the future, its long history as a store of value makes it an asset that some investors feel comfortable holding during uncertain times.
Demand for gold as a ‘safe-haven’ may also increase if other traditional ‘safe-haven’ assets begin to appear less attractive. The Swiss Franc for example has surged to its highest level since 2011 leading to speculation that the Swiss National Bank may move to negative interest rates which could result in negative government bond yields.[10] In terms of the Japanese Yen, Prime Minister Shigeru Ishiba warned the Japanese parliament that the Japanese fiscal situation ‘is undoubtedly extremely poor, worse than Greece’s’. These concerns might serve to dampen investor interest in the Franc and the Yen as ‘safe haven’ assets.
Amid these developments, and as demonstrated above, discussions about the future role of the US Dollar as the world’s main reserve currency are becoming more common. While these trends may take time to unfold, some investors are reassessing which assets feel truly ‘safe’ over the long-term.
Gold has a 6,000 year history as a store of wealth, and even in recent times has performed well during times of economic flux. There’s no guarantee that gold will continue to perform this longstanding role in the future, but it is perhaps easy to understand why increasing numbers of investors are turning to gold as a long-term ‘safe-haven asset’.
[1] https://ratings.moodys.com/ratings-news/443154
[2] https://www.pgpf.org/national-debt-clock/
[3] https://ratings.moodys.com/ratings-news/443154
[4] https://www.cbo.gov/publication/61420
[6] https://finance.yahoo.com/quote/DX-Y.NYB/
[9] https://www.sciencedirect.com/science/article/abs/pii/S0022199623001083
Notes
The content of this article is accurate at the time of publishing, is for general information purposes only, and does not constitute investment, legal, tax or any other advice. Before making any investment or financial decision, you may wish to seek advice from your financial, legal, tax and/or accounting advisers.
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*The information provided is accurate as of 4:30 PM on 28th March 2025.
