Gold is going up because Trump is talking down the dollar, feeding ‘the narrative of relative U.S. decline,’ UBS fears

The price of gold hit another new record yesterday, soaring above $5,300. It’s up an astonishing 3% this morning, as measured by the Comex continuous contract. Gold has gained 22.31%, year-to-date.

It’s not hard to see why. Gold is outperforming as a safe-haven for investors who are bailing out of assets being dragged down by the falling U.S. dollar. 

The dollar fell 1.3% yesterday against a standard index of foreign currencies. It’s down over 2% year to date. One euro now buys $1.20. The British pound is worth $1.38. The dollar hasn’t been this weak for years.

U.S. President Donald Trump said he was totally fine with that. “No, I think it’s great,” Trump said when asked by reporters yesterday. “I think the value of the dollar — look at the business we’re doing. The dollar’s doing great.”

The president is hoping that a sinking dollar will make U.S. assets cheaper and thus boost America’s export trade.

The risk is that the rest of the world loses faith in the dollar’s status as the world’s “reserve currency,” the notion that the dollar, and dollar-denominated assets, will always be the safe call. No one on Wall Street seriously thinks that the U.S. is in danger of losing reserve status anytime soon—but they sure are talking about it a lot.

“The dollar is not likely to lose reserve status overnight,” UBS’s Paul Donovan said earlier this week. “However, the decline of the U.S. internationally and international investors’ questions over key issues like rule of law mean it is losing market share. Moreover, as trade stagnates (and may retreat), reserve status becomes less important. International investors are not likely to flounce out of dollar assets in a dramatic exit, but may be less interested in accumulating additional dollar holdings.”

This morning he told clients: “The risk of the weaker dollar is the narrative of relative U.S. decline, with implications for capital flows. Bonds, not inflation, are most vulnerable to dollar weakness.” 

George Vessey, the lead FX and macro strategist at Convera, told Fortune: “The common thread is erratic U.S. policymaking, which has revived the dollar’s risk premium and pushed investors to rotate out of dollar‑denominated assets or hedge their exposure.”

ING’s Chris Turner wrote that he thinks the dollar could lose another 3% against foreign currencies.

“We had not been expecting the extent of this dollar sell-off so quickly. Instructive will be how the dollar performs around tonight’s [Federal Open Market Committee] meeting. Our take is that a Fed shifting to a pause could provide the dollar with some support. However, were any rally to prove weak and the dollar to end up lower on the day, even if short-dated U.S. yields rose, then it would signal very bearish dollar momentum,” he said in a note.

“We could be well on the way to a decent 3% leg lower in the dollar. It is hard to back that up with fundamentals, but the burden really is now on the dollar to prove otherwise.” 

With the greenback failing in its mission as a “store of value,” investors piling into gold instead, and central banks shifting toward bullion as a hedge against the declining dollar, you might expect Bitcoin to be doing well. 

It is not. 

The cryptocurrency was priced at $89.4K this morning—well below its record highs. It’s down over 13% over the last 12 months. Ed Yardeni of Yardeni Research had the best headline on this topic yesterday: “Is Gold The New Bitcoin?”

All this drama has somewhat overshadowed the U.S. equity market: The S&P 500 hit a new record high yesterday, up 0.41% at 6,978.6. Futures on the index were up 0.33% this morning. But for foreign investors, yesterday’s 0.41% gain was more than offset by the -1% haircut imposed by the dollar’s decline—a rare example of a day when dollar assets lost value globally despite going up.

Taken together, it seems that traders are betting that Trump’s “weak dollar, better exports” strategy will be good for equities—but just in case the president is wrong, they’re buying gold as well.

Here’s a snapshot of the markets ahead of the opening bell in New York this morning:

• S&P 500 futures were up 0.33% this morning. The last session closed up 0.41% at 6,978.60, a new record high.
• STOXX Europe 600 was down 0.43% in early trading.
• The U.K.’s FTSE 100 was down 0.32% in early trading. 
• Japan’s Nikkei 225 was flat.
• China’s CSI 300 was up 0.26%.
• The South Korea KOSPI was up 1.69%.
• India’s NIFTY 50 was up 0.66%.
• Bitcoin was up at $89.4K.

This story was originally featured on Fortune.com