Grappling with the greenback

FOR the longest time, one of the safest assets for investors was the US dollar. Many still hold US dollar-denominated assets, whether in currency or investments.

The dynamics of the tariff war and Donald Trump’s policies have shaken confidence in the US dollar. Investors are now unsure about what to do with their US dollar investments, as unwinding large positions is challenging due to liquidity issues.

As a result, money has shifted from US dollars into gold and bitcoin, though these options come with their own set of challenges.

For one, gold is purely a store of value and is not a productive asset.

“While gold has some heritage or aesthetic value, it does not generate any returns beyond that,” Tradeview Capital chief executive officer and founder Ng Zhu Hann tells StarBiz 7.

Additionally, some investors may find gold volatile and subject to fluctuations based on global economic conditions, despite being a safe haven asset traditionally.

While Ng acknowledges the concerns about gold’s reliance on price appreciation for returns and potential liquidity issues during market stress, he points out that these risks aren’t exclusive to gold.

“Every movement of funds from one asset class to another exposes investors to a new set of risks specific to that asset. This is normal and it is about being cognisant and managing those risks well,” he says.

Capital flight into gold signals de-dollarisation, fuelled by tariff threats and concerns over US debt sustainability, worsened by the One Big Beautiful Bill Act, which undermined confidence in the US dollar as the primary reserve currency, Ng adds.

Central banks have emerged as a driving force behind the record-breaking bull market for the precious metal. China has been a key buyer, adding to its gold reserves for a seventh consecutive month in May.

iFAST Capital research analyst Kevin Khaw Khai Sheng advises against investing in gold or bitcoin solely for capital appreciation, as they lack fundamentals – unlike stocks or bonds, which are supported by business performance or interest payments.

“It is quite tough for retail investors because they have no idea when they should cut losses or average down,” he says.

Khaw opines it is more prudent to hedge one’s portfolio.

“Even though the central banks’ gold purchases have been substantial, they are actually using gold as one of their hedging tools. This is not really comparable with retail investors who buy gold for speculative reasons,” he says.

Spot gold prices began trading around US$2,600 to US$2,800 per ounce in January before climbing sharply to reach a record high of US$3,500 in late April. There was a mild pullback after that as some global trade tensions eased, but it remained near the historic high.

At the time of writing, spot gold has surpassed US$3,400 per ounce – reflecting a substantial year-to-date gain of more than 30%.

Alongside the bullion, bitcoin has also seen inflows as part of the broader shift away from the US dollar. Nevertheless, views on its role as a hedge remain divided.

Ng remains cautious about bitcoin, emphasising regulatory concerns.

“Bitcoin is an unregulated asset which is mainly speculative. It has no value in terms of hedging. Neither does it have a reserve currency value or have any proven utility,” he says.

Bitcoin started 2025 at US$94,000. Trump’s Strategic Bitcoin Reserve order in March sent bitcoin down to near US$75,000 levels.

In April, US-China tensions caused bitcoin to fall to a year-to-date low of US$75,000. Investor sentiment turned positive during late-May trade talks, sending bitcoin above the US$111,000 level.

It is now trading around US$104,000 amid tariff and geopolitical uncertainties.

Yet, SPI Asset Management managing director Stephen Innes believes the risk lies not in owning gold or cryptocurrencies, but in assuming that the greenback will always remain the safe harbour.

“That assumption is being challenged,” he says.

The US Dollar Index (DXY), which measures the value of the US dollar against six major currencies, extended its losses on Thursday, to 97.9 points.

A value above 100 in the DXY reflects a stronger US dollar and a value below 100 indicates a weaker dollar.

Innes says investors are rightly uneasy about the US’ twin deficits – the politicisation of the Federal Reserve policy and creeping debasement risk.

“There’s been a clear rotation away from US dollar into hard assets, and it’s not just about chasing performance – it’s about hedging structural risk.

“Gold has reasserted itself as the go-to hedge against fiat fragility, while bitcoin, despite volatility, is increasingly being treated as digital gold by younger allocators and wealth managers looking for uncorrelated asymmetry,” he says.

The weakening dollar and US debt sustainability has also cast a shadow over the bond market, particularly long-dated US Treasuries (USTs), which are closely tied to investor confidence in US fiscal and monetary stability.

UST yields have risen notably this year, with the US 30-year Treasury yield touching a near two-decade high of 5.15% last month.

Innes says the US bond market is undergoing a regime shift, moving from a world of scarcity to one of oversupply where massive issuance meets tepid demand just as the Fed’s independence is under political scrutiny.

“Foreign demand is softening, auctions are wobbly, and quantitative tightening continues in the background. This is not a technical blip; it is a structural repricing of sovereign risk,” he notes.

OCBC foreign-exchange (forex)strategist Christopher Wong says as confidence in the US dollar continues to waver, exporters and asset managers in the region will continue to reduce their US dollar exposure and increase hedge ratio.

He notes that the Taiwanese dollar’s near 10% gain in early May serves as a reminder to those hoarding US dollars to actively manage forex risk.

What then does this all mean for emerging markets (EMs) like Malaysia?

Innes says it is both a risk and an opportunity for EMs.

On the one hand, higher US yields and a less dominant dollar narrative open the door for more stable capital inflows – especially into current account surplus economies with commodity exposure.

On the other hand, a disorderly bond selloff or a US liquidity crunch could trigger classic EM outflows.

“Malaysia needs to position itself as a regional safe haven – leaning on domestic demand strength, trade diversification and its gold-linked cultural affinity. For investors, it is about selective EMs with sound macro and external buffers. Malaysia fits that profile – if policy stability holds,” he says.

OCBC head of forex and rates strategy Frances Cheung says for domestic investors in Malaysia or in other Asian markets, the strategy may be to repatriate some of overseas funds to be put in the local currency market.

“For example, Malaysia government bonds are highly rated and are one of the investment choices for foreign investors, including foreign central banks.

“Malaysia government bonds (including both conventional and Islamic bonds) recorded huge inflows of RM14.3bil during May, likely having benefited from diversion flows,” she says.