• Rising gold prices reflect declining trust in the USD due to U.S. sanctions, market access restrictions, and unpredictable "America First" policies
• No viable alternative currency challenges the USD’s dominance, but gold’s surge signals a gradual shift toward a multi-polar financial system
• Geopolitical tensions and fears of stagflation drive central bank and private investor demand for gold as a safe-haven asset

Harare- Throughout history, the world has typically adopted the currency of the dominant economic and geopolitical power for global payments. This leading nation often provided “global public goods,” such as freedom of navigation, enforcement of international contracts, and stability in commerce, finance, and interstate relations.

Historically, gold, and to a lesser extent silver, underpinned the value of money initially through gold coins and later through fiat currencies backed by government gold reserves with guaranteed convertibility at a fixed rate.

The dominant power also tended to possess a technological edge, supporting both military and economic leadership, which was deployed to maintain commercial, financial, and geopolitical stability, often referred to as “hegemonic stability.”

Periods such as Pax Romana, Pax Britannica, and Pax Americana after World War II exemplify this stability.

The U.S. dollar (USD), arguably the first global currency untethered from precious metals, has maintained its dominance in global capital markets and cross-border payments, facilitated by the size and complexity of U.S. financial markets, which continue to attract significant public and private investment despite a declining U.S. share of global trade.

The USD’s preeminence however, faces challenges driven more by geopolitical than economic factors. While the USD accounts for roughly half of all cross-border payments via SWIFT, recent geopolitical tensions have spurred efforts to reduce reliance on it.

Russia, facing extensive sanctions, has sought to diversify its reserves into other currencies and monetary gold while advocating for a BRICS currency, though this initiative has faltered due to lack of consensus.

China has increased the use of the renminbi (RMB) for bilateral trade but remains reluctant to allow the free capital flows or balance of payments deficits necessary for the RMB to become a global currency.

The European Central Bank (ECB) sees an opportunity for the euro to gain prominence but faces challenges from fragmented European financial markets and fiscal authority, with its planned central bank digital currency (CBDC) likely limited to intra-European trade initially.

No viable alternative to the USD currently exists, as neither China nor Europe is positioned to fully supplant it due to political and structural constraints.

The USD’s unique status as a currency detached from precious metals began to face scrutiny in 1971 when President Nixon ended its convertibility to gold, prompted by foreign claims exceeding U.S. gold reserves.

This led to a gold price surge from $40/oz to $108/oz between 1971 and 1973 as the market adjusted.

Despite intermittent challenges, the USD has retained global trust based on the “full faith and credit” of the U.S.

However, since 2022, gold prices have risen sharply, potentially signalling a shift toward a more multi-polar international monetary system.

This increase coincided with Russia’s invasion of Ukraine and the subsequent freezing of its USD and euro reserves, as well as its exclusion from the SWIFT system.

The new Trump Administration’s retreat from traditional U.S. support for free global trade, multilateralism, and a strong dollar has further weakened confidence, driving demand for gold as central banks diversify reserves and private investors seek protection against potential tariffs and stagflation.

The recent surge in gold prices also reflects declining trust in the U.S. due to its use of sanctions and market access restrictions to pursue domestic policy goals under the “America First” agenda.

The Administration’s withdrawal from post-World War II international treaties and its unpredictable policy shifts have further eroded confidence.

Private investment in gold, particularly through gold Exchange Traded Funds (ETFs), spiked after Trump’s “Liberation Day” announcement on April 6, 2025, and has remained strong, with a brief net outflow in May following a proposed but unrealised China-U.S. “entente.”

Concerns about rising global tariff barriers and the risk of stagflation, an economic scenario where gold has historically outperformed other assets have further fuelled demand.

Despite these pressures, no currency matches the USD’s depth and market quality, suggesting that any transition to a multi-polar system will be gradual, as seen historically when the U.S. economy overtook Britain’s in the late 19th century, yet the USD only became the dominant currency fifty years later.

During this period of uncertainty, gold is likely to remain a buoyant safe-haven asset, resuming its historic role as a neutral store of value free from any nation’s liabilities.

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