TOKYO — The intensifying gold rush on the part of central banks suggests the fallout from Donald Trump’s fiscal handiwork is just beginning.
As top monetary authorities pile into gold at historically elevated prices, the real goal is reducing exposure to the US dollar. This dynamic belies US President Trump’s claims that multi-trillion-dollar tax cuts pay for themselves. It’s also a response to Trump’s chaotic tariffs.
The Washington-based Committee for a Responsible Federal Budget (CRFB) calls the “Big Beautiful Bill” that Republicans just rubber-stamped the most expensive reconciliation bill in history.” It will add $4.1 trillion to the national debt through 2034. If the temporary provisions are made permanent, this balloons to $5.5 trillion.
As Trump’s Treasury Department strategizes on how to finance his spending spree, it will be relying on China and the rest of Asia, home to the top holders of US public debt, for financing. Many of these major holders, including Japan and South Korea, now face “reciprocal” Trump tariffs.
Things aren’t going according to plan, if trends in the gold market are any guide.
China, for example, isn’t known for chasing runaway bull markets higher. And yet, that’s precisely what the People’s Bank of China was doing as it added to its official gold reserves for an eighth straight month in June, despite prices trading near record highs.
The PBOC’s bullion holdings rose by 70,000 troy ounces last month. Since the current run of central bank purchases began in November, Governor Pan Gongsheng’s PBOC has added 1.1 million troy ounces, or about 34.2 metric tons, to gold holdings.
That’s despite gold having skyrocketed more than 26% so far this year. It’s no coincidence that this rally, and central bank hoarding, heated up after Trump’s surprise election win in November and since the Trump 2.0 era officially began in January.
That has China rethinking its reliance on the US dollar in general. Krishan Gopaul, an analyst at the World Gold Council, says Beijing’s year-to-date net gold purchases have reached 19 metric tons.
Trump, after all, returned to office with even bigger plans to curb the Federal Reserve’s independence and hasten the surge in US government debt toward the $30 trillion mark and beyond. At the same time, public transparency and press freedom are waning fast. That makes it harder for private sector economists to assess the true state of Washington’s fiscal trajectory.
Not surprisingly, the dollar’s 13% plunge is seen as accelerating. It’s not that simple, of course, as dollar buying surges in some circles as Trump slaps fresh 50% tariffs on copper and Brazil.
“We think central banks are buying gold to diversify reserves, reduce reliance on the dollar and hedge against inflation and economic uncertainty,” notes analyst Lawson Winder at Bank of America. It’s a “trend that we think is set to continue, especially amid uncertainty surrounding US tariffs and fiscal deficit concerns.”
TS Lombard, meanwhile, is sticking with its short position on the greenback, calling it “the gift that keeps on giving.”
“Trump’s attacks on the Fed” and his “explicit desire for a weaker dollar,” TS Lombard strategist Daniel Von Ahlen says, “only add to that view. The dollar remains overvalued on most foreign exchange metrics. With US dollar negatives ubiquitous, why not expect the dollar to become undervalued? We remain firmly short dollar across a range of trades in our book.”
Central bank gold purchases have been especially frenetic among governments that aren’t particularly friendly to US interests, including China;, Egypt, Hungary, India, Kazakhstan, Kyrgyzstan, Pakistan, Turkey, Uzbekistan and Gulf States such as Qatar.
BRICS nations Brazil, Russia, India, China and South Africa have not been shy about their desire to sideline the dollar. The push to create a dollar alternative may now kick into overdrive as Republicans, and now Trump himself in uniquely personal terms, turn up the temperature on Brazil.
Trump tied the 50% tax on what he calls Brazil’s “attacks” on US tech companies and pursuing a “witch hunt” against former President Jair Bolsonaro. The Trump ally is being prosecuted over his alleged role in efforts to overturn the 2022 election.
BRICS members may view this broadside in the context of US efforts to weaponize its financial dominance. Trump’s threats to penalize countries that flirt with using other currencies haven’t gone down well with currency markets.
And while Congress recently abandoned a plan to allow the White House to slap taxes on companies and individuals from nations it doesn’t like, there’s grave concern that such actions might still be in the works. The damage, analysts say, has already been done.
This very idea “challenges the open nature of US capital markets by explicitly using taxation on foreign holdings of US assets as leverage to further US economic goals,” says economist George Saravelos at Deutsche Bank. This “weaponization of US capital markets,” he says, risks “creating the scope for the US administration to transform a trade war into a capital war if it so wishes.”
Trouble is, the weaponization dynamic has become too commonplace for overseas investors to dismiss it as a quirk. There’s a cost to being seen as weaponizing the dollar, warns economist Zongyuan Zoe Liu at the Council on Foreign Relations.
Case in point: freezing a rival nation’s access to its currency reserves, as former US President Joe Biden’s team did with Russia in response to Vladimir Putin’s Ukraine invasion. “The more the US uses it, the more other countries are going to diversify due to geopolitical reasons,” Liu notes.
In 2022, Congress granted Biden’s White House authority to seize Russian dollar assets to aid Ukraine. This so-called REPO provision allowed then-Treasury Secretary Janet Yellen’s team to transfer Russian government assets to a Ukraine reconstruction fund. It fueled fresh debate about the long-term costs of using the dollar’s dominance in unsavory ways.
Yet Trump 2.0 is rapidly finding new ways to damage America’s geopolitical soft power. Case in point: Trump’s crackdown on student visas for China and a steadily expanding number of other countries he doesn’t like. Few other US industries enjoy such a large trade
surplus as higher education has racked up.
The damage Trump 2.0 is doing to the dollar’s reserve-currency status is only increasing.
For now, says Rodrigo Catril, a strategist at National Australia Bank, the dollar remains dominant for several reasons. It’s the most liquid currency, trades freely and remains a pivotal lending medium around the globe. But, he adds, as “Trump increases the pressure on BRICS, it may well accelerate a move away from the dollar.”
Globally, BRICS members control more than 40% of central-bank reserves. The bloc’s determination to reduce its reliance on the dollar includes an internal push for a single currency to be used between them.
As the BRICS countries figure out how to tighten their financial bonds, Beijing has been among the most enthusiastic reserve diversifiers within the group. Its move to accelerate gold purchases comes amid the chaos of Trump’s trade war and a mushrooming US federal budget deficit.
In recent years, China has been reducing its holdings of US Treasuries. Its current stockpile of US$760 billion of US debt has left Japan holding the proverbial bag as Washington’s top banker in Asia. Today, Tokyo holds about US$1.1 trillion of US Treasuries.
Trump’s assault on the Fed might only accelerate the pivot to gold that we’re seeing in capitals from Beijing to Jakarta. Many investors still worry that Trump will try to fire Fed Chairman Jerome Powell. Or attempt to intimidate Powell into resigning 10 months before his term is up.
“A good case could be made for nominating the next Fed chair a few months before the handover in May 2026,” notes Krishna Guha, head of global policy central bank strategy at Evercore ISI. “But nominating the next Fed chair now with the expectation that this person would be an active alternative voice on monetary policy for the best part of year would confuse the market, making it harder for the Fed to shape rate expectations and potentially … in ways that would not help advance rate cuts.”
Nor would those ways help to preserve the dollar’s role as a global safe haven. It’s well known that China and other US adversaries crave a dollar-free future. Yet Trump World is buttressing the argument for them as it makes gold great again.
