Gold prices set new all-time highs in February, and a “crisis of confidence” in the U.S. dollar could push prices higher still, according to strategists at VanEck.
In their latest monthly update, Imaru Casanova, Portfolio Manager for Gold and Precious Metals, and Gold Strategist Joe Foster wrote that gold’s strong performance in February was driven by safe-haven demand amid concerns over the new U.S. administration’s trade policy.
“The Trump administration’s policy-induced uncertainty, combined with rising inflation expectations and diminished consumer confidence, weighed on major stock indexes, further boosting gold’s appeal as an alternative investment and portfolio diversifier,” they said. “A key factor behind gold’s latest rally was a surge in the holdings of gold bullion-backed ETFs. Total known ETF holdings of gold increased by 2.49% in February, marking the largest monthly inflow since March 2022.”
And while a strengthening U.S. dollar and profit-taking in the last week of February triggered a pullback from the new highs, gold still finished the month trading at $2,857.83 per ounce for a monthly gain of $59.42, or 2.12%.
“The NYSE Arca Gold Miners Index (GDMNTR) gained 2.01% in February, performing significantly better than the broader equity markets, but ultimately falling short of matching the metal’s gains,” they noted. “However, year to date, gold equities have demonstrated relatively strong leverage to gold prices, rising 17.22% compared to bullion’s 8.89% gain.”
Casanova and Foster believe that the gold industry has, for the most part, been isolated from the negative impact of global tariffs.
“In fact, many gold producers could benefit from foreign currency depreciations triggered by these tariffs, as a significant portion of their cost base is denominated in local currencies,” they wrote. “For example, Alamos Gold (approximately 7% of Strategy net assets), estimates that about 90-95% of its Canadian operational costs are Canadian dollar-denominated, while about 40-45% of its Mexican mine expenses are denominated in pesos. While industry cost inflation is widely reported around the 3-5% range for 2025, the potential benefit of weaker local currencies and a rising gold price should more than offset inflationary pressures for the sector. This dynamic is expected to continue to drive margin expansion to new record levels.”
The analysts said that the U.S. dollar has been the cornerstone of the global financial system for more than a century, but this is beginning to change.
“The U.S. dollar’s strength against other currencies has traditionally been supported by the robustness of the U.S. economy and its reputation as one of the safest jurisdictions in which to invest,” they wrote, sharing a chart showing the steady long-term upward trend of the U.S. Dollar Index over recent years.
“Despite its strength, the dollar has been devaluing relative to gold—an unprecedented trend that few view as a threat to the currency or sign of a precipitated crisis,” they said, noting that gold bull markets have traditionally been driven by runaway inflation, a declining dollar, and financial crises.
“The current gold bull market, which began in 2016, is remarkable because it is not accompanied by U.S. dollar weakness or a global financial crisis,” the analysts wrote. “While the pandemic was a crisis, its financial impact was short-lived, thanks to massive government intervention.”
Casanova and Foster see a new driver emerging in the gold market: The erosion of confidence in the U.S. dollar.
“[P]eople and nations that have long used, coveted and hoarded the U.S. dollar are now losing faith and trust in the currency as a store of wealth,” they said. “This shift began in 2008 when the global financial crisis led many to question the efficacy of the banking system and western economic hegemony. It escalated with sanctions and freezing of assets imposed on Russia by the U.S. Other countries fear that similar retribution or ‘weaponization of the dollar’ is possible for lesser infractions than the hostile invasion of another country.”
The analysts noted that trade tariffs have now been weaponized by the new U.S. administration. “Gold has gained 275% since Lehman Brothers failed in 2008 and 50% since Russia invaded Ukraine in 2022,” they said. “Additionally, irresponsible fiscal policies and political chaos in the U.S. suggest that one or more of the traditional drivers of gold may reemerge. As a result, the world is slowly and methodically moving away from the dollar, a shift most evident in changes to currency reserves and increased central bank gold purchases.”
They noted that China has been decreasing its U.S. Treasury holdings while increasing its gold reserves.
“Central bank net purchases of gold began in earnest after the financial crisis and accelerated after the Ukraine invasion,” they noted.
“We believe this marks the start of longer-term trends that will become recognized as a crisis of confidence in the U.S. dollar, potentially driving gold prices much higher than many expect,” they concluded. “If a digital asset like Bitcoin, created and residing within servers, can be valued at $100,000, then surely an ounce of a tangible, reliable safe-haven asset like gold could reach a small fraction of that value.”
Source: Ernest Hoffman Kitco
