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The Dollar, Gold, and Bitcoin: Explaining Recent Volatility
The U.S. dollar has stabilized and partially recovered over the past year after falling sharply in 2025 amid tariffs, fiscal deficit concerns, and shifting Fed policy expectations. At its low, the dollar index (DXY) fell below 100 for the first time in several years; it has since rebounded as the Federal Reserve held interest rates steady, with market expectations shifting toward the possibility of a rate increase rather than the cuts investors had anticipated.
Yen Drop Impacts Dollar
A dramatic slide in the Japanese yen, which recently touched a 40-year low near 163 per dollar, has made the dollar look stronger by comparison. At the same time, the U.S.-Iran memorandum of understanding has reduced some of the safe-haven demand that had periodically supported the dollar amid geopolitical uncertainty.
Gold Pullback Continues
Gold has pulled back sharply, falling from roughly $5,400 to around $4,100 an ounce, as the same forces that once supported it – a weaker dollar, central bank diversification away from dollar reserves, and geopolitical risk – have begun to reverse. With the Fed holding rates steady rather than cutting, the opportunity cost of holding gold, which generates no income, has also increased.
Bitcoin Falls Behind
Bitcoin has struggled even as the broader stock market, led by AI-related names, has rallied to new highs. After reaching an all-time high near $125,000 last October, Bitcoin has since fallen to around $60,000, underscoring that it has not behaved like a traditional safe-haven asset and remains highly correlated with broader risk appetite rather than serving as a reliable dollar hedge.
Dollar Remains Dominant
The dollar remains the world’s dominant reserve currency, and history offers useful perspective: similar concerns about its future – during Japan’s rise in the 1980s, the euro’s introduction, and China’s economic expansion – did not ultimately displace it. Any meaningful shift toward alternatives such as the renminbi or cryptocurrencies is likely to unfold over decades rather than years.
Looking Ahead
Looking ahead, investors should view the dollar, gold, and Bitcoin – like any single asset – in the context of a broader, well-diversified portfolio rather than as standalone bets on any one economic narrative.
As Always
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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