Maybe, just maybe the EU will start swapping their USD-denominated reserves for gold and (at least eventually) renminbi 😉

Good For Gold, Bad For USD: US Tariffs on Europe

The tariffs imposed by the U.S. on the European countries are detrimental to USD's position as a reserve currency. A capital outflow out of the U.S. dollar creates positive price pressure on gold via increased demand.

This is true regardless of the U.S. Supreme Court's decision on whether President Trump can lawfully impose unilateral broad tariffs via executive order using the the International Emergency Economic Powers Act (IEEAP).

At the high level, there's two moves for gold here:

➖ If the tariffs are deemed illegal and the collected tariff revenue must to refunded - which would lead to an increase of USD supply accessible to the wider economy. The refund would come either from existing reserves, thus directly increasing broad money or from newly issued debt, which may reduce broad money in the short-term, but the newly issued bonds will eventually be rehypothecated, thus effectively increasing USD credit/effective supply. This is positive price pressure on gold, at the very least due to the increase in liquidity. This is negative price pressure on USD, due to increased supply & public debt of the issuer.

➖If the tariffs are deemed legal, and/or do not need to be refunded, the geopolitical and liquidity risk remains, which materializes in a lower incencitve to own USD. After all, why would you want to hold a currency, whose purchasing power/liqudity may be reduced every other week after the markets close on a Friday? Gold is the natural outflow path from USD, especially at sovereign/central bank level.

If the Eurozone wants to reduce their USD exposure in the next 5 years, what can they do? The European countries may not want to start significantly increasing the share of renminbi in their FX reserves just yet. Additionally, EU could position Euro as an alternative to USD for settlements, as EUR is already the second most used currency for international trade & FX turnover, second only to USD. Gold presents itself as an attractive alternative to USD, even if the focus on increasing its tonnage in the reserves is transitory. At the very least, increasing the share of gold relative to the balance sheet size in the Eurozone, would increase foreign exchange rate value of Euro and/or would provide basis for monetary expansion in the future.

Many forget that the "gold and foreign exchange reserves" are a single asset-side item in central banks balance sheets. "Gold" is explicitly discriminated among all other assets/commodities, while all currencies and their derivatives (e.g. sovereign bonds) are clustered under the generic "FX reserves" name. Across all currencies, renminbi is best positioned to increase its share in reserve assets and international settlement. Unlike renminbi, gold is nobody's liability and has no counterparty risk (assuming no jurisdiction risk, which can be greatly mitigated by storing the gold bullion domestically).

Given this, I expect the European countries to increase their gold holdings, via a combination of swaps from USD-denominated assets for gold and other FX currencies like the Chinese Yen.

Ruble was the best performing major currency of 2025, and it's easy to understand why

What Russia did is replace USD-denominated securities (treasuries, bonds, etc) with gold.

Gold is almost 40% of Russia's Central bank balance sheet, compare it to ≈20% for European Union, ≈16% for U.S. and ≈5% for China. This leaves Russia's central bank with a massive balance sheet capacity for the future and supports the Ruble price.

There's also the National Wealth Fund, which commits to buying gold when Urals oil is sold/traded above a certain price.

This is how The Soviet Union kickstarted Eurodollar markets in the 1950's

Eurodollars are USD deposits held at banks outside the U.S. Originally, they were held mostly in European jurisdictions, thus the "Euro" in the name.

URSS needed U.S. dollars for international trade, but they didn't trust keeping balances directly in New York, as they feared that U.S. would freeze or seize those deposits.

So URSS placed their USD deposits in European banks, often via Soviet-linked banks. Those European banks then re-deposited or lent out those dollars to other banks and institutions.

I've written extensively how the policies of the current U.S. administration are a negative for the USD. Asian countries have been progressively moving away from USD, and this is a sign from Europe in that direction (but don't expect heavy de-dollarization in the near future).

Overall, I view this as a net positive for the sovereignty of EU/Europe as a whole. A more developed financial system infrastructure is crucial for attracting the use of Euro, which is already the 2nd most used currency in the world.

How exactly does Bitcoin break U.S. dollar control, when >90% of Bitcoin's buying volume is USD-derived (including stablecoins)?

i explained how weaker US dollar increases cross-border USD liquidity in this thread: https://illya.sh/threads/@1755216337-1.html

Illya Gerasymchuk 2025-08-20 20:35

weaker USD, means appreciation of FX currencies and since many cross-border bank loans are collateralized with a local currency - solvency ratios improve, thus increasing balance sheet capacity for more USD credit

this means an increase in broad money

weaker USD, means appreciation of FX currencies and since many cross-border bank loans are collateralized with a local currency - solvency ratios improve, thus increasing balance sheet capacity for more USD credit

this means an increase in broad money

Illya Gerasymchuk 2025-08-20 20:35

i covered more this aspect of QE in my thread about how to use yield spreads to reason about future Bitcoin price and cycles

you can read it here: https://illya.sh/threads/@1755595543-1.html

it's NOT yet the top of the cycle for equities, cryptocurrencies and other risk assets. here’s why

1️⃣ US Treasury is issuing more debt

2️⃣ in the next months I expect the Fed to cut rates and/or introduce some form of QE

3️⃣ weaker USD means more cross-border USD credit

i wrote a thread explaining why weaker USD means more credit/loans issued in USD, thus driving up global liquidity

you can read it here: https://illya.sh/threads/@1755216337-1.html

Illya Gerasymchuk 2025-08-16 12:42

USD cross-border bank credit grew by $800 billion in Q1 2025

expect further increases for Q2 2025, due to the weak US dollar

USD cross-border bank credit grew by $800 billion in Q1 2025

expect further increases for Q2 2025, due to the weak US dollar

renminbi has become dominant in credit growth since 2022

a move from US dollar & Euro denominated credit to Chinese Yuan-denominated credit

USD dominates in cross-border bank credit to non-bank financial institutions in 2025

this collateral (US Treasury bonds) can then be used on wholesale debt markets to issue more credit

moreover, this collateral can be leveraged/rehypothecated, thus increasing liquidity

still, in the USA the Fed continues to dominate in importance

Illya Gerasymchuk 2025-08-16 11:43

so it may not only be central bank setting the rates and affecting liquidity

for example, when US Treasury auctions bonds, they're both, temporarily reducing the effective amount of USD in circulation and providing more high-quanlity collateral

so a weaker US dollar tends to increase global USD liquidity

in the SVAR, one standard deviation of US dollar's appreciation leads to a fall in cross-border USD lending. it reaches its bottom after 6 months and then eventually recovers after 2.5 years if no new shocks arrive

Illya Gerasymchuk 2025-08-15 01:09

bank's leverage ratios improve due to collateral appreciation, thus allowing them to borrow more USD

collateral here is the non-USD local currency, such as Yuan

weaker US dollar means more USD credit issuance abroad - here's why

foreign banks frequently borrow USD through wholesale markets with a local currency denominated collateral

when USD depreciates against a local currency, offshore USD credit now has a reduced debt service

i wrote a thread about what it means for the US dollar to be the reserve currency from the perspective of demand and liquidity

you can read it here:
https://illya.sh/threads/@1754940239-1.html

Illya Gerasymchuk 2025-08-14 20:28

this is nothing unusual though - many governments do this, and it's mostly towards stabilizing the exchange rate with USD

to a large extent this is a result US dollar's reserve currency status and its dominance in use for all sorts of financial transactions

this is nothing unusual though - many governments do this, and it's mostly towards stabilizing the exchange rate with USD

to a large extent this is a result US dollar's reserve currency status and its dominance in use for all sorts of financial transactions

Illya Gerasymchuk 2025-08-14 20:21

🇯🇵 Yen's exchange rate stabilization is a responsibility of the Minister of Finance (MoF)

MoF is also the holder of Japan's international reserves - not the Bank of Japan

so in Japan the government has significant responsibility for USD/JPY

🇯🇵 Yen's exchange rate stabilization is a responsibility of the Minister of Finance (MoF)

MoF is also the holder of Japan's international reserves - not the Bank of Japan

so in Japan the government has significant responsibility for USD/JPY

gold is in the same price range as when the US dollar index was ≈97.7 on July 25th 2025

if DXY hits ≈97.1 - expect gold to retest ≈$3440. this time with a stronger support build up by price action

this could definitely be what pushes gold to a new all time high

Illya Gerasymchuk 2025-08-12 22:52

re-iterating on the 1.5 month old thread 😄

inflation is still here to stay and gold is still yet to do something - but it sure will

i also wrote a thread explaining the importance of USD-denominated government debt for short-term funding/credit markets

remember that most of credit is issued to refinance existing debt and not for new financing

you can read it here:
https://illya.sh/threads/@1751726431-1

Illya Gerasymchuk 2025-08-11 21:08

i wrote about how reverse repurchase agreements work and their importance in the global financial system in this thread:
https://illya.sh/threads/@1751561045-2

the US will be able to sustain their debt financing for as long as US government debt and US dollar dominate in demand

for as long as USD is the reserve currency - the US can finance its debt

in other words, as long as there's enough buyers and users - it's all good! 😁

Illya Gerasymchuk 2025-08-11 20:31

debt includes all form, tenor and issuers of USD-denominated debt are included, both public and private

examples: US Treasuries, corporate bonds, commercial bank credit, epos, FX swaps, central-bank lines

liquidity means availability, thus it comes down to being able to:

1️⃣ access USD credit
2️⃣ settle payments in USD

this means balance sheet capacity and hybrid technological intermediation systems in place

Illya Gerasymchuk 2025-08-11 20:25

demand is created legal/regulatory environment and open market forces

legal/regulatory environment includes international bilateral agreements and national laws

open market forces influence the evaluation of USD against other currencies and assets

demand is created legal/regulatory environment and open market forces

legal/regulatory environment includes international bilateral agreements and national laws

open market forces influence the evaluation of USD against other currencies and assets

Illya Gerasymchuk 2025-08-11 20:23

USD is the world's reserve currency, but what does that mean?

for USD to be a reserve currency it must dominate in:

1️⃣ USD-denominated credit issuance (demand)
2️⃣ USD use a means of settlement for payments (liquidity)

this dominance must be at least relative to alternatives

USD is the world's reserve currency, but what does that mean?

for USD to be a reserve currency it must dominate in:

1️⃣ USD-denominated credit issuance (demand)
2️⃣ USD use a means of settlement for payments (liquidity)

this dominance must be at least relative to alternatives

further deprecation of USD against Ruble

now back to July 4th 2025 levels

Illya Gerasymchuk 2025-08-04 14:54

5 days ago I wrote that USD/RUB rate will fall. 5 days later it's down ≈2%

despite oil being down - gold is up

Ruble has hedge from multiple sides