The US Dollar Index has declined approximately 10% in 2025 while precious metals surge to all-time highs.
Economist Tyler Cowen warns the flight to gold and silver signals declining confidence in the dollar's role as the world's primary safe haven asset.
Gold is trading around $4,400 per ounce, up more than 66% year-to-date.
Silver has surged past $72 per ounce, gaining approximately 140% this year.
What Happened
The US Dollar Index (DXY) has fallen 9.4% against a basket of major currencies including the euro, yen, and pound through late December.
The decline marks the dollar's steepest annual drop since 2017.
Gold prices reached a record high above $4,540 per ounce on December 26 before pulling back to around $4,330.
Silver crossed $77 per ounce during the same period, extending its historic rally.
In an op-ed published in The Free Press, Tyler Cowen, economics professor at George Mason University, described the precious metals surge as a "flash warning for the economy."
"The rush for precious metals should worry us all," Cowen wrote.
"It reflects a new and possibly disastrous danger on the horizon."
Cowen argues that increased economic correlation means fewer financial protection options during crises.
"It used to be that if you were worried about the future, you would move into dollars as the safe haven," Cowen explained.
"But if the United States' own government and policies are unpredictable, and its economy is volatile, you will look for some other hedges instead."
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Why It Matters
The dollar's decline stems from multiple factors including slower US growth, persistent fiscal deficits, and policy uncertainty.
Federal Reserve officials remain divided on future rate cuts despite markets pricing in two additional reductions in 2026.
Central banks worldwide have accelerated diversification away from dollar reserves.
The US Dollar Index touched its lowest level since early October at 97.7.
Gold has gained more than 70% in 2025, marking its strongest annual performance since 1979.
The shift reflects changing perceptions about US policy predictability and the dollar's traditional countercyclical role.
Geopolitical tensions including conflicts in Ukraine and the Middle East have amplified safe haven demand for physical assets.
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