U.S. dollar crisis: ‘Big shock’ coming in the first half of 2025, says Tavi Costa(Kitco News) - As the U.S. dollar begins 2025 on firm footing, questions linger about how long this strength can persist against the backdrop of mounting debt and shifting global capital flows. The greenback has been buoyed by resilient economic indicators and elevated Treasury yields, but macro strategist Tavi Costa of Crescat Capital warns that this dominance may soon falter. Speaking to Kitco News as part of its Outlook 2025 coverage, Costa explains why he sees a critical turning point for the dollar this year and highlights the implications for gold, silver, and global markets.
The U.S. dollar’s strength has been a defining feature of global markets in recent years, supported by steady capital inflows into U.S. assets. However, Costa sees a structural shift on the horizon, driven by unsustainable fiscal policies.
“One of the biggest traits for 2025 is the peak of the U.S. dollar versus other fiat currency,” Tavi said. “Not only against tangible assets but really against other fiat currencies. This would happen in the first or second quarter of 2025. This is going to be the beginning of a major trend that will drive other markets outside of the West to a degree that we haven't seen in a very long time.”
According to Costa, historical dollar cycles offer valuable insights. Using 10-year rolling changes as a proxy, he highlights how long-term cycles have alternated between dollar appreciation and depreciation.
The dollar’s strength has had mixed consequences. While it has helped temper import prices, it has also strained U.S. exporters and multinational corporations by reducing the competitiveness of their goods and services. Moreover, Costa argues that the aggressive fiscal expansion pursued by the U.S. is creating vulnerabilities that could accelerate a reversal.
“Valuations in the U.S. are larger than in 1929 right before the great depression. Why are people thinking that there's a lot more value here? It wouldn't surprise me at all if we see a big shock at the beginning of 2025,” he said. “I'm really worried about risk, and that that's going to translate to a lower dollar. And that's going to be the next chapter of macro in the following years.”
For investors, the potential peak in the dollar presents opportunities in tangible assets like gold and silver. Costa highlights gold’s performance as a hedge against fiscal irresponsibility and currency devaluation. “Gold’s appeal is only growing as central banks continue to increase their purchases,” he says, referencing the recent surge in central bank demand for the yellow metal. ..............
https://www.kitco.com/news/article/2025-01-15/us-dollar-crisis-big-shock-coming-first-half-2025-says-tavi-costa
