The Flow of Capital: Gold and Crypto as Dollar Alternatives

The core thesis is clear: the U.S. dollar's dominance is eroding. The most critical metric shows its share in global foreign exchange reserves has fallen to 56.92%, a two-decade low. This decline, from 71.19% in 1999, signals a multi-decade rebalancing of global capital.

Central banks are the primary drivers of this shift. Their net purchases of 863 tonnes of gold in 2025 represent a key channel for diversification away from dollar-denominated assets. This resilient buying, even at record gold prices, underscores a strategic move to reduce currency exposure.

The bottom line is a tangible flow of capital. As reserve managers seek alternatives, the dollar's share is under sustained pressure, challenging its long-held reserve status despite its continued dominance in global transactions.

The Flow of Capital: ETFs, Treasuries, and Geopolitics

The most direct channel for capital exiting dollar assets is through physical-backed gold ETFs. In January 2026, global gold ETFs attracted a record $19 billion in inflows, pushing assets under management to a new high of $669 billion. This surge, driven by investors in North America and Asia, represents a tangible flight to a non-dollar store of value.

A key indicator of waning confidence is the reduced foreign ownership of U.S. Treasuries. Over the last 15 years, the share of foreign holdings in the U.S. Treasury market has fallen, pointing to a structural shift away from dollar-denominated debt. This trend signals that the traditional safe-haven asset is losing its appeal to international buyers.

Geopolitical actions are accelerating the "bring capital home" trend. The recent seizure of a foreign leader is cited as a prime example of the U.S. prioritizing its own interests, which makes the dollar less attractive to foreign central banks and investors. In this environment, capital is flowing into alternatives like gold and domestic assets, directly challenging the dollar's reserve status.

The Price Impact and What to Watch

The most direct signal is price action. Gold has broken above $5,200 an ounce in early 2026, a level that directly links dollar stress to hard asset demand. This move, which hit the year's target within the first month, shows the market is front-loading a hedge against monetary debasement and geopolitical uncertainty.

The sustainability of this rally hinges on central bank buying. While 2025 saw resilient 863 tonnes of net purchases, that was below the +1,000-tonne annual level of recent years. If demand falls below that threshold, it would signal a loss of strategic conviction and threaten the rally's foundation.

The key metrics to watch are U.S. Treasury auction results and foreign ownership data. Weak demand in Treasury auctions would confirm a flight from dollar assets, while a continued decline in foreign holdings would accelerate the outflow trend. These flows, combined with gold's price, will determine if the shift is a cyclical spike or the start of a structural reallocation.