The Dollar Falters as Gold Remains Stable     

In the past three months, the U.S. Dollar Index (DXY) has fallen from 108 to below 99. This means the dollar has dropped in value relative to major foreign currencies by over 8% in just the past quarter. This is disastrous for those holding large amounts of uninvested cash. In just a short period, the value of these savings has taken a significant hit. But why has the dollar’s value fallen so much?

When the dollar’s value drops, there are some typical suspects. In some instances, excessive money printing increases the amount of currency in circulation without increasing the supply of goods. This leads to inflation, which devalues the dollar. That was the source of the dollar’s fall during COVID and in the years that followed. However, this time there is a different culprit. 

Instead of the standard inflation that results from an increase in the money supply, this time the cause of the devaluation is artificial inflation driven by imposed tariffs. The dollar can no longer purchase the same amount of goods it once could, not because there is more currency in circulation, but because the goods themselves have become more expensive to produce. One of the rationales for the tariffs was that U.S.-based producers competing with foreign countries such as China would see their goods increase in domestic demand due to relative price stability. 

However, what was not accounted for is that most, if not all, of these producers source at least some of their intermediate goods, which are used in their production process, from foreign countries. In many cases, it is neither profitable nor feasible to produce certain goods entirely within the U.S. Thus, when tariffs substantially increase the prices of foreign goods, this harms domestic producers as well as consumers. As a result, prices of all goods increase, not just foreign ones, and the dollar loses a portion of its buying power.…