One of Wall Street’s most feared hedge fund managers on the decline of the dollar: gold is ‘becoming the reserve asset’

Gold surged past $5,300/oz last month before easing to about $5,100/oz as investors sought safe havens amid hawkish trade rhetoric and concerns over U.S. fiscal sustainability after the CBO flagged $1.9 trillion deficit spending. Greenlight Capital’s David Einhorn argues central banks are shifting from Treasurys toward gold — noting the dollar still held roughly a 58% share of reserves in mid‑2025 — and expects more Fed rate cuts than currently priced, a dynamic he says could further weaken confidence in the dollar and support gold as a reserve asset.

Analysis

Market structure: A renewed hedging bid into gold benefits physical bullion and upstream miners (GLD, GDX, GOLD, NEM) while pressuring dollar-sensitive instruments (UUP, TLT, USD-denominated EM assets). Central-bank interest in non-dollar reserves + $5,100–$5,300/oz gold implies demand shock against a roughly fixed annual mined supply (~1–2% growth), lifting real prices more than marginal supply can absorb over 6–24 months. Expect higher gold implied vol and weaker USD correlations to persist during risk-off skews.

Risk assessment: Tail risks include a policy surprise where the Fed stays hawkish (gold -20–30% stress) or a sudden coordinated central-bank sale of gold (low probability but high impact). Immediate (days) risk = volatile swings around headlines; short-term (weeks–months) = positioning into expected Fed cuts; long-term (years) = gradual reserve reallocation dependent on China/Russia bilateral settlement flows. Hidden dependence: gold demand is sensitive to reserve flows >$40–50B/month in Treasuries and FX reserve reallocation announcements.

Trade implications: Tactical allocation (3–6 months) favors long GLD/GDX and selective AUDCAD longs versus USD; hedges include short-duration Treasuries (TLT or futures) and buy GLD calls for convexity. Use 3–9 month option structures to express a contested view on cuts vs de-dollarization; set explicit triggers (buy on pullback to <$5,000/oz or add on break >$5,400/oz).

Contrarian angles: The market may be overstating a rapid reserve switch—gold purchases fell in 2025 and the dollar still holds ~58% reserve share, so mean reversion risk exists (historical 2011 peak). If the Fed tightens to defend FX, gold can collapse; cap exposure (single-line 3–5%) and favor optionality over large directional bets.

Key Decisions for Investors

• Establish a 2.5% tactical long in GLD within 2 weeks (increase to 4% only if gold closes >$5,400/oz on weekly basis); stop-loss: trim to 1% if gold falls >12% from entry.
• Add 1% long exposure to GDX (miners) as leveraged play; hedge with 0.5% allocation to 9-month GDX 1:1 call spreads (buy 0–15% OTM, sell 40–60% OTM) to limit downside and capture leveraged upside.
• Short 2% notional of long-duration Treasuries (sell TLT or short 30y futures) to hedge a regime of rising sovereign yields driven by Treasury outflows; unwind if 10y yield falls >50bp from trade entry or if Treasury monthly foreign net purchases become >+$50B.
• Implement a pair: long 1.5% AUDUSD FX forward (or EWA exposure) vs short 1.5% UUP ETF for 3–6 months to express de-dollarization and commodity-currency appreciation; exit if AUDUSD falls 6% from entry or UUP rallies 4%, or if BIS/IMF monthly reserve reports contradict flow assumptions.