{"id":2788,"date":"2025-05-01T17:28:30","date_gmt":"2025-05-01T17:28:30","guid":{"rendered":"https:\/\/trusteconomics.eu\/?p=2788"},"modified":"2025-05-01T17:28:30","modified_gmt":"2025-05-01T17:28:30","slug":"the-devalued-dollar-will-cause-prices-to-soar-in-all-commodities","status":"publish","type":"post","link":"https:\/\/trusteconomics.eu\/index.php\/2025\/05\/01\/the-devalued-dollar-will-cause-prices-to-soar-in-all-commodities\/","title":{"rendered":"The devalued dollar will cause prices to soar in all commodities"},"content":{"rendered":"\r\n

Should we get used to the idea that financial markets are operating on the back of a weak dollar?<\/p>\r\n\r\n\r\n\r\n

This is the biggest reversal of conventional investment wisdom since the end of World War II. The dollar has weathered many crises, of course, but this time the stakes are high! What is particularly noteworthy \u2013 and of historical significance \u2013 is the weakening of the dollar \u2013 not just as a technical move in the currency market, but as a policy outcome in a changing global economic climate and rising systemic risk.<\/p>\r\n\r\n\r\n\r\n

So far in 2025, the dollar has fallen more than 8% against a basket of major currencies \u2013 the worst start to the year in the four-year history of the ICE US Dollar Index. The indicator is flashing red, not just because of a well-known macroeconomic anomaly, but because of something more structural: a deliberate policy that is upending the global role of the dollar with broader implications.<\/p>\r\n\r\n\r\n\r\n

The White House is on the cusp of what has been called the \u201cMar-a-Lago Pact\u201d\u2014as we have written repeatedly in the Liberal Globe\u2014an effort to revalue the dollar lower in order to boost the competitiveness of U.S. manufacturing.<\/p>\r\n\r\n\r\n\r\n

As Treasury Secretary Bessent and Council of Economic Advisers Chairman Steven Miran have made clear, their goal includes lowering long-term U.S. Treasury yields by encouraging a coordinated weakening of the dollar.<\/p>\r\n\r\n\r\n\r\n

But there is a problem. Weakening the dollar while maintaining its status as the world\u2019s reserve currency is no easy feat. The dollar has been the backbone of global capital markets precisely because it has been strong, stable, and protected from political whims.<\/p>\r\n\r\n\r\n\r\n

Now, with a reversed trade policy and mixed signals from Washington, we see the costs of monetary dominance rising.<\/p>\r\n\r\n\r\n

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Tariffs don\u2019t just affect trade flows \u2013 they also squeeze business margins, reduce consumers\u2019 real incomes and undermine confidence in US institutions. The bond market is seeing it.<\/p>\r\n\r\n\r\n\r\n

Interest rates are rising \u2013 not because of optimism about growth, but because foreign bondholders are revaluing US assets in their portfolios. As of February 2025, foreign investors held $8.8 trillion in US debt.<\/p>\r\n\r\n\r\n\r\n

If this buyer base shrinks, yields on US Treasury bonds should rise, pushing up US borrowing costs and further weakening the dollar\u2019s \u200b\u200b\u201csafe haven\u201d credentials. A weaker dollar also puts foreign central banks in a difficult position.<\/p>\r\n\r\n\r\n\r\n

It inflates their currencies, hurts the competitiveness of their exports, and forces them to consider early interest rate cuts.<\/p>\r\n\r\n\r\n

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The game is changing radically<\/strong><\/p>\r\n\r\n\r\n\r\n

We are in uncharted waters where the traditional investor reflex of \u201cflight to US safe assets\u201d \u2013 strong dollar, falling US yields \u2013 does not \u201cwork\u201d.<\/p>\r\n\r\n\r\n\r\n

Furthermore, global investors may feel less inclined to automatically choose the US as their safe haven. And yes, markets are noticing what many will not say out loud: that US markets are now carrying a political risk premium \u2013 that of market realignment.<\/p>\r\n\r\n\r\n\r\n

US bonds are behaving less like risk-free assets and more like emerging market assets \u2013 \u201cUS emerging market\u201d is now a serious topic of discussion. To be clear, there are scenarios \u2013 such as a global recession \u2013 where the dollar could rebound in a short-lived flight to safety. But that is not a bet most people want to take.<\/p>\r\n\r\n\r\n\r\n

The long-term dollar exchange rate curve is determined by confidence in it as a \u201csafe haven.\u201d Undermining confidence in the U.S. currency for short-term strategic gains risks damaging the trust that took decades to build. And trust, once shaken, is not easily restored. The U.S. government views currency depreciation as a tool for reindustrialization.<\/p>\r\n\r\n\r\n\r\n

Policymakers would be wise to proceed with caution, however, because the risks are enormous. The dollar is not just another macroeconomic lever\u2014it is a cornerstone of American economic dominance. If that erodes, we may all discover how fragile that dominance can be in a changing economic landscape.<\/p>\r\n\r\n\r\n\r\n

What does the US Dollar Index show?<\/strong><\/p>\r\n\r\n\r\n\r\n

The dollar index has fallen sharply since the beginning of the year as we mentioned, which has boosted commodity prices, especially metals like gold and silver, due to their inverse relationship. This decline stems from a number of factors, including a stock market plunge that has triggered foreign capital outflows, rising recession risks and expectations of future interest rate cuts, as well as growing uncertainty about America\u2019s new tariff policies.<\/p>\r\n\r\n\r\n\r\n

However, after three months of steady declines, the dollar is now at a critical crossroads \u2013 a crossroads that will significantly influence its next move, as well as how commodities and precious metals react going forward.<\/p>\r\n\r\n\r\n\r\n

The crossroads lies in the fact that the US Dollar Index – a measure of the dollar’s exchange rate against a basket of major global currencies (not its domestic purchasing power) – is now right at a significant long-term support level around 100.<\/p>\r\n\r\n\r\n\r\n

This level has held for several years and has caused significant rallies in the past, including the most recent rally in September 2024, which triggered a pullback from precious metals in the months ahead.<\/p>\r\n\r\n\r\n\r\n

How the US Dollar Index behaves from here on out will have a significant impact on the direction of the commodities and precious metals intersection.<\/p>\r\n\r\n\r\n\r\n

1.<\/strong> A decisive break below this level would likely open the door to a deeper decline, possibly to the lows of the 90s or even lower, which would be particularly bullish for commodities and could push gold towards $4,000 and silver above $40-50.<\/p>\r\n\r\n\r\n\r\n

2.<\/strong> However, if the Dollar Index finds firm support at the 100 level, it is likely to rebound, which would be a headwind for commodities. However, gold, which remains in a strong uptrend, is likely to consolidate rather than experience a sharp pullback.<\/p>\r\n\r\n\r\n

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The US Dollar Index, which, as the chart below shows, maintains a long-term inverse relationship with commodity prices:<\/em><\/p>\r\n\r\n\r\n

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One can clearly see the inverse relationship between the US dollar and gold:<\/em><\/p>\r\n\r\n\r\n

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And here in the following chart the inverse relationship between the US dollar and silver is visible:<\/em><\/p>\r\n\r\n\r\n

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Here’s a chart of gold over the past three years, showing the strong bull market that has been forming over the past year. The behavior of the dollar from this point forward is likely to play a key role in shaping the next phase of the gold rally.<\/p>\r\n\r\n\r\n

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The dollar index is currently on the verge of its key support level of 100 \u2014 it could fall to 90 and weaken further, or recover and return to 100, recovering some of its recent losses.<\/p>\r\n\r\n\r\n\r\n

It is worth noting that the increasing risk of recession increases the likelihood of imminent interest rate cuts by the Fed, which, in turn, would put downward pressure on the dollar.<\/p>\r\n\r\n\r\n\r\n

In the longer term, however, one can be optimistic about the dollar due to its current extreme overvaluation against other currencies, a phenomenon not observed in over 120 years of data – except for 1933 and 1985 – both periods were followed by significant dollar declines.<\/p>\r\n\r\n\r\n\r\n

The unusual strength of the dollar in recent years has been a major factor in keeping commodity prices much lower than they would normally be. However, an imminent correction in the value of the dollar should spark a strong bullish rally across the commodities sector, including assets such as copper, gold, silver and mining stocks.<\/p>\r\n\r\n\r\n

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A look at the long-term chart of the US Dollar Index (bottom chart) reveals that it has been trading in an ascending channel since around 2008. Trust Economics believes that a potential breakdown from this channel would be a key sign that the dollar is entering a new \u201cbear market,\u201d similar to what occurred in the early 2000s.<\/p>\r\n\r\n\r\n

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The coming dollar bear market will trigger a powerful supercycle (a prolonged period of price increases that exceed what is considered normal) in the commodities market \u2014 similar to the one that began in the early 2000s, when everything from copper to oil to wheat saw huge gains.<\/p>\r\n\r\n\r\n\r\n

Further supporting this outlook is the extremely low valuation of commodities relative to U.S. stocks, as shown in the chart below. When this ratio reaches such extremes, as it is now, it often retreats sharply, triggering significant moves across the entire commodity complex.<\/p>\r\n\r\n\r\n

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The US Dollar Index is at a major crossroads right now. What it does from here on out\u2014whether it falls below the key 100 level and continues to sink, or bounces off that support\u2014will have a significant impact on how commodities, especially gold and silver, perform in the short term.<\/p>\r\n\r\n\r\n\r\n

There is plenty of optimism for precious metals in the big picture, regardless of what the dollar does\u2014the fate of which is tied to whether tariff deals are reached and the prospect of a super deal with China. These timing features are likely to play a significant role in shaping the next major moves in the market.<\/p>\r\n\r\n\r\n\r\n

 <\/p>\r\n","protected":false},"excerpt":{"rendered":"

Should we get used to the idea that financial markets are operating on the back of a weak dollar? This is the biggest reversal of conventional investment wisdom since the end of World War II. The dollar has weathered many crises, of course, but this time the stakes are high! What is particularly noteworthy \u2013 … <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[17,391],"tags":[361,83,82,910,938,747,141,631],"class_list":["post-2788","post","type-post","status-publish","format-standard","hentry","category-financial-markets","category-market-analyses","tag-commodities","tag-dollar","tag-gold","tag-mar-a-largo-accord","tag-steven-miran","tag-tariffs","tag-usa","tag-wall-street"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2788","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/comments?post=2788"}],"version-history":[{"count":2,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2788\/revisions"}],"predecessor-version":[{"id":2790,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2788\/revisions\/2790"}],"wp:attachment":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/media?parent=2788"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/categories?post=2788"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/tags?post=2788"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}