The surge in gold prices this year does not suggest the world is moving away from the US dollar, the Federal Reserve's deputy director of international finance said on Thursday.
Spot gold was trading at $3,780.70 an ounce on Thursday, more than 40 per cent higher than since the start of the year. Investors have rushed to the precious metal as they seek a safe-haven asset amid the White House's shifting trade agenda.
"This price increase has indeed caused a spike in the amount in the amount of gold in official reserve assets," said Stephanie Curcuru, deputy director of the Fed board's international finance division.
"But in quantity terms ... the amount of gold reserves in official reserve assets has moved only modestly, so that suggests that it's private investor demand for gold driving up prices, rather than official demands for reserves," she said during the Federal Reserve Bank of New York's fourth annual conference on the international roles of the US dollar.
US President Donald Trump's tariffs have cast into question the status of the dollar as the world's reserve currency. The greenback has enjoyed this privilege for six decades.
Mr Trump announced a broad set of sanctions against dozens of countries, saving the harshest punishments for those the US is considered to have the largest trade deficit with.
He withdrew those harsher charges after a bond market rout. His administration remains in trade negotiations with some of its largest trading partners including China, Mexico and Canada.
While tariffs have historically caused the dollar to appreciate, this year's episode has caused the world's reserve currency to move the other way.
The US dollar index, which measures the greenback against a basket of foreign currencies, has fallen more than 9 per cent this year.
"This is the odd thing. The dollar depreciated on April 2," said Arvind Krishnamurthy, a professor at the Stanford Business School, referring to what Mr Trump called Liberation Day.
US dollar movements tend to have a direct impact on spending patterns in the Gulf Co-operation Council, where most currencies are pegged to the greenback. Experts have previously said the dollar's weakening this year has affected the region through a reduction in international remittances, less discretionary spending, and stronger tourism inflows.
A paper released last week by Boston University economics professor Tarek Hassan, San Francisco Fed vice president Thomas Mertens, and Jingye Wang of the Renmin University of China, concluded that while tariffs could weaken this status, it is not currently enough to reverse it.
The authors wrote that the weakening of the dollar's safe-haven status could lead to an increase in US interest rates and a decrease in capital outflows. The paper said a tipping point of a 26 per cent US tariff rate could lead to a shift to another anchor currency. Mr Trump is imposing an average tariff rate of about 17 to 18 per cent.
