Han Dieperink: The dollar remains stable
This column was originally written in Dutch. This is an English translation.
By Han Dieperink, written in a personal capacity
Friday 30 January was a remarkable day on the precious metals markets. Gold futures fell by 11%, silver futures by no less than 31%: the biggest drop for silver since March 1980. The extreme movements followed the nomination of Kevin Warsh as the new chairman of the Federal Reserve. The question is whether the concerns about the weakness of the dollar were justified.
The rise in gold and silver prices has been enormous in recent years. Gold rose by 66% in 2025, silver by as much as 135%. At the beginning of last week, gold reached almost $5,600 per troy ounce. In recent weeks, the rise has been parabolic. What began as a flight to safety due to geopolitical unrest turned into speculative trading, with small investors in particular jumping on the bandwagon en masse. According to figures from the World Gold Council, no less than $89 billion flowed into gold ETFs in 2025. In 2024, this figure was only £4 billion. This rally, driven by small investors, was reminiscent of the meme stock boom, but in precious metals.
The rally was fuelled by the conspiracy theory of the so-called “debasement trade”: the fear that the dollar would lose its status as the world's most important currency. That there was a secret plan to impoverish citizens, that inflation was being deliberately concealed, that hyperinflation was inevitable and that everything except gold and bitcoin would go to zero. In that context, there were fears that Trump would choose a Fed chairman who would bow to political pressure to lower interest rates. Trump's open criticism of Fed Chairman Jerome Powell and the investigation into him by the Department of Justice fuelled fears of political interference in the Fed.
Trump's limits
An important aspect of the market reaction was the fear that Trump would be able to do whatever he deemed necessary without any limits. This fear is exaggerated. The choice of Warsh shows that Trump is taking Republican senators into account. The Senate still has to confirm Warsh, which gives the party influence. Trump is not an absolute ruler, even though he likes to present himself as such.
The founders of the United States deliberately designed the constitution to prevent democracy from turning into a dictatorship. Democracy must be defended, but the checks and balances in the American system are strong. Three forces that Trump cannot control determine the real limits of his power: the judiciary, the electorate and the bond market.
Several cases directly affecting Trump's policies are pending before the Supreme Court. The constitutionality of reciprocal import tariffs is under discussion. Even a conservative Supreme Court, three of whose nine members were appointed by Trump himself, may decide that certain actions exceed constitutional limits. The rule of law is stronger than many people think.
Elections are scheduled in the United States in November. Historically, midterm elections have rarely been kind to the incumbent president. There are signs that the unpredictability of Trump's policies is also raising questions among Republican voters. The chaos surrounding tariffs, diplomatic tensions with allies and ongoing turbulence are beginning to have an effect.
Perhaps the most direct brake on Trump's policies comes from the bond market. Trump openly measures his success by the performance of the financial markets. For him, a rising stock market is proof of successful policies, while a falling stock market is a signal that adjustments are needed. This self-imposed yardstick makes him vulnerable. The president who claims not to be bothered by external pressure appears to be extremely sensitive to Wall Street prices. The US has a national debt of more than $36 trillion. America is dependent on investors' willingness to continue buying that debt. As soon as that willingness declines, interest rates rise and budgetary space shrinks. Ultimately, the creditor dictates the terms.
Warsh: back to reality
The appointment of Kevin Warsh is a perfect example of these limitations. This former Fed governor, who worked at the Fed from 2006 to 2011, is known as someone who takes inflation seriously. He is not an extreme hawk, but a pragmatist who values the Fed's independence. During his previous time at the Fed, he criticised the purchase of bonds to keep interest rates low. The market sees his appointment as a sign that the Fed will remain independent and will not bow to political pressure for lower interest rates. The dollar rose, while gold and silver plummeted.
No alternative to the dollar
The main reason why concerns about the dollar are exaggerated is simple: there is currently no real alternative. The debate about de-dollarisation now seems to have passed its peak. However understandable the desire to move away from the dollar may be, there is in fact no other option for large currency positions.
The eurozone, with its 27 different jurisdictions and the scars of the euro crisis, does not offer the unity and depth that institutional investors are looking for. And as long as the Chinese renminbi is not freely tradable, it will remain an unserious alternative to the deep, liquid US financial markets. The dollar owes its position not only to economic strength, but also to the lack of a credible competitor.
Meanwhile, capital flows towards US assets are increasing rather than decreasing. US companies lead the way in technology and innovation. Productivity growth is impressive, particularly due to the impact of artificial intelligence. This fundamental strength of the US economy outweighs short-term politics.
Were the concerns exaggerated?
Concerns about the weakness of the dollar overlooked some important facts. Central banks continue to hold dollar reserves. History shows that gold often does not rise much over long periods. With the exception of the 1970s, the 2000s and recent years, gold has often disappointed as an investment. Every boom in gold and silver is inevitably followed by a bust.
Economic uncertainty is real, but markets can exaggerate concerns. The US economy remains strong and with a pragmatic Fed chairman like Warsh, the likelihood of a weak dollar is much smaller than many feared. Despite the recent decline, gold prices remain historically high. Even below £4,000, they would still be at the level of five months ago.
Trump's statements about the dollar may cause noise, but in the long term, structural factors are what matter. Warsh's appointment shows that the safeguards are stronger than many thought. Trump has to take into account the Republican Party, the courts, the voters and the bond market. The dollar remains the world's reserve currency because there is simply no alternative and because the US Constitution places effective limits on presidential power. The American economy is productive, innovative and has the deepest financial markets in the world. The dollar will therefore remain the world's most important reserve currency for many years to come.