Many institutions are also optimistic about the performance of the US dollar in 2025. They believe that the policies of Trump's new administration will be unfavorable to non-US assets, and the US dollar is expected to strengthen further and be reinforced after his official election, thus becoming the main direction of capital flow. However, We believes that this view may not necessarily come true.
Countries Are Well-prepared for the Impact of New Policies
We believes that the market may be overly pessimistic about the impact of the new US administration on global finance. In fact, the new president is no stranger, and his tariff policy is nothing new. Since non-US countries have already experienced the impact of his first term, the global economy has prepared for multi-polar development. Therefore, the current view that the measures of the new administration can once again cause the phenomenon in 2018, which is extremely beneficial to the US dollar and harmful to non-US assets, is too extreme and hyped up. The situation is a bit like the end of 2023, when market participants extremely boasted that the Japanese yen would strengthen significantly in the future, but the facts finally went in the opposite direction.
Republican Division Is a Potential Uncertainty
In addition, the governance of the new US administration may not be as smooth as the market expected, and may even trigger a new round of social division crisis. The serious division within the Republican Party is already an open fact, and the voting result of the budget bill in mid - December is an example. Moreover, the tax cuts, infrastructure construction and government structure optimization advocated by the new administration may aggravate the deficit and debt problems of the US government. If so, the US dollar may not be stable.
Increased Probability of Social Instability in the US
At the same time, if the newly established efficiency department really removes a large number of positions, it may trigger large-scale strikes and social unrest, and the result may lead to a debt default crisis or large-scale social turmoil. Looking back at history, the large-scale structural downsizing after Elon took over X caused serious chaos. However, since the personnel of X were science and technology talents and were immediately absorbed by the market, no accident occurred. But for the government's large-scale structural downsizing, most of the laid-off people are low-skilled workers, and the job market will be in chaos.
High Risk of a Significant Pullback in US Stocks
Also, although the market is looking forward to the new policies continuing to support US stocks and the US economy and is hyping up the upgrade of artificial intelligence, US stocks have accumulated excessive gains, and the development of the artificial intelligence economy is also facing a critical point. The investment bubble in artificial intelligence has taken shape, and there is a possibility that there will be a wave of capital disruption in high-tech innovation in 2025. If so, the expected performance of the US economy may not be as good as the market said. If the performance of US stocks fails to support the profit expectations, capital is expected to seek new outlets in advance.
There Is Often "Another Outcome" in the Market
If any of the above inferences comes true, the current market forecast will be invalid, and another result will emerge: "The US dollar will weaken significantly", which will be beneficial to the gold price. And the most likely time for this to happen is "the end of the second quarter of 2025"!
First of all, in the first quarter of 2025, Germany, France and Canada will still face political pressure such as elections, and there is a chance that non-US currencies will still be under pressure in the first quarter. In addition, the new US president will have a honeymoon period, and the state of the union address and the budget bill will have to wait until the middle of the second quarter to be announced. Therefore, even if there is a gap between the expected policies and the actual ones, or there are economic cycle factors, it will take until the middle of 2025 at the earliest. In addition, there will be the G7 meeting led by the US in the middle of the year, or the so-called Plaza II Agreement meeting, and it is common to see the coordinated operations between the US and the central banks of allied countries after the meeting.
The recovery of non-US economies in the middle of 2025 is not only to match the new US administration, but also related to the political and economic recovery of non-US countries to normal growth rates after excessive pessimism. Among them, the inflation pressure in non-US countries may force non-US central banks to slow down interest rate cuts or keep interest rates unchanged. This interest rate gap may make non-US currencies stronger and the US dollar weaker, which will be an incentive to push up the gold price.
Of course, if the US and non-US countries return to balanced growth after interaction, there is a possibility that risky assets such as stocks will become more attractive. Historically, when the stock market is booming, the gold price is often under pressure, and this is another outcome that may occur in the fourth quarter of 2025.
By Wayne Lai
A senior financial practitioner in Hong Kong. He has served well-known financial public relations firms, financial media, and investment banks. Past service targets include Societe Generale, CMC Markets, KVB Kunlun, etc. At the same time, he is a part-time lecturer at colleges and universities, a regular guest of financial media, and an author of financial readings. He has represented Hong Kong to attend world financial forums many times. Currently, he is the research and marketing director of Royal Capital. Over the years, he has won multiple industry awards for service institutions.
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