Gold on Fire: Is This the End of Dollar Dominance?

Gold has become the standout trade of 2025, reclaiming center stage as one of the strongest performing asset classes year to date. The yellow metal has climbed relentlessly, with gold, GLD inflows and global reserve allocations surging to levels not seen since the pandemic era—and in some cases, since the late 1970s. What started as a safe-haven bid has morphed into something much bigger: a referendum on inflation, the credibility of the Federal Reserve, and, in the eyes of many, the durability of American exceptionalism in global markets.

Several forces have fueled this rally. Persistent inflation worries have investors questioning whether the Fed can bring price growth down without breaking the economy. Tariffs and sticky wages keep underlying cost pressures elevated, and the central bank itself has become part of the debate. Political moves challenging the Fed’s independence, including President Trump’s push to remove Governor Lisa Cook, have amplified unease about monetary credibility. In that environment, gold shines as a store of value immune to central bank missteps.

Foreign flows have been equally critical. Investors abroad are shunning U.S. Treasuries, long the global reserve backbone, in favor of bullion. Treasury auctions have consistently shown weaker indirect bidding, highlighting reduced appetite from overseas buyers. By contrast, central banks and sovereigns have been stockpiling gold reserves at a pace not seen in three decades. Gold’s share of global international reserves reached 24% in Q1 2025, surpassing the euro and trailing only the dollar. That’s a remarkable shift, reflecting structural diversification away from dollar assets.

The dollar’s own behavior has reinforced this trend. Typically, market stress pushes the dollar higher as investors flock to safety. But between February and April, during a broad equity selloff, the dollar actually fell more than 10%. That divergence suggested that investors were looking past the greenback as a safe haven and turning to gold instead. To some, this was a symbolic turning point—a hint that the era of unquestioned U.S. financial dominance may be entering a new phase.

Market positioning confirms the enthusiasm. Citi reports that global gold ETFs saw $10.5 billion of inflows in September alone, with over half arriving in the four sessions after the Fed’s September 17 meeting. Year-to-date, inflows have reached $50 billion, roughly equal to the first nine months of 2020 when pandemic fears drove record buying. That wave of capital has pushed prices sharply higher, with Citi forecasting near-term targets of $3,800 an ounce. Goldman Sachs has gone further, suggesting gold could test $4,500–$5,000 if Fed credibility erodes and even a small shift occurs from Treasuries into bullion. RBC, meanwhile, has lifted its 2025 and 2026 forecasts, calling for prices to clear $4,000 within the next 18 months.

Speculative flows show similar conviction. Options traders have been positioning for higher levels, with large buy-write activity in GLD calls at strikes nearly 30% above current prices. Futures data reveals net long positions remain elevated, despite some trimming in September. And the broader sentiment picture is euphoric: Gold is up more than 42% year to date, on pace for its best year since 1979.

Yet even as investors acknowledge the trade looks stretched, few are willing to call an end. The consensus is that this is a sentiment-driven market, less about supply and demand fundamentals than about narrative: inflation risk, Fed independence, dollar credibility, and geopolitical instability. Until those narratives shift, the positioning may remain one-sided. History shows sentiment can stay elevated for long stretches, especially when reinforced by structural flows like central bank reserve accumulation.

Geopolitics continue to provide tailwinds. Rising tensions between the U.S., Russia, and Middle East actors have underscored gold’s safe-haven role. Trump’s shifting stance on NATO and Ukraine, ongoing Houthi attacks in the region, and broader uncertainty over U.S. commitments abroad all contribute to the backdrop. For many investors, it is not about timing these headlines but about holding insurance against their potential outcomes.

Gold equities have also staged a comeback. After years of lagging the metal, miners have outperformed by more than 40% year to date. Improved free cash flow generation, disciplined capital allocation, and rising dividends have rebuilt some trust in the sector. Global majors like Barrick and Newmont remain cautious investments, but mid-caps and Australian names have shown outsized returns. Goldman and RBC both highlight select miners as well positioned to outperform even if the gold price consolidates.

There are, of course, risks to extrapolating too far. Analysts caution that cyclical volatility is likely in the years ahead, particularly if U.S. growth reaccelerates in 2026 and real rates move higher. Sentiment can reverse quickly if the dollar regains safe-haven status or if the Fed reasserts independence with a more forceful inflation fight. For now, though, the momentum is undeniable. Gold has become the asset of choice for those questioning the old order of markets, and every inflow, reserve purchase, or auction disappointment only adds to the narrative.

Positioning is stretched, sentiment is euphoric, and yet the trade keeps working. That paradox is often a hallmark of momentum runs, especially in commodities. For professionals, the key is recognizing that “overextended” does not necessarily mean “finished.” Until public and institutional sentiment around the dollar, the Fed, and U.S. exceptionalism meaningfully shifts, the yellow metal’s shine may continue to dazzle.