Gold surpassed $5,300 per ounce last month as President Donald Trump’s aggressive foreign policy and tariff threats prompted investors to seek safer assets. At the same time, the US deficit has ballooned to what the Congressional Budget Office called an unsustainable $1.9 trillion, a scenario that undermines the dollar’s position as the world’s leading reserve currency.
The confluence of these factors has led some investors to predict the decline of Treasury bonds as the only true global reserve asset. Greenlight Capital founder David Einhorn made this clear in a recent conversation with CNBC. Investment legend predicts a monumental shift in global reserve assets, predicting that central banks will swap dollars for the yellow metal.
“Central banks around the world are buying gold,” Einhorn said. “Whereas a few years ago it was mostly Treasury bonds.” He added that gold “is becoming the reserve asset” because U.S. trade policy “is very unstable, and that is causing other countries to want to settle their trade in something other than the U.S. dollar.”
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To be fair, the dollar still dominates as the preferred reserve currency. While in the first half of last year central banks sold more than $48 billion in Treasury bonds, as of July 2025 the dollar still represents about 58% of all foreign exchange reserves, according to the Philadelphia Federal Reserve. And gold purchases by central banks fell in 2025 from their peak between 2022 and 2024, according to data from the World Gold Council.
Furthermore, Einhorn has long predicted that the price of gold will rise due to fears surrounding US monetary and fiscal policy. In an interview with CNBC last year, the hedge fund manager stated that “gold is not about inflation. Gold is about confidence in fiscal and monetary policy.” While the investor does not advocate a return to the gold standard, he is a strong advocate of holding the metal as a hedge against US fiscal and monetary mismanagement.
On Wednesday, Einhorn added that US trade policy is causing jitters in global markets, fueling the trend to “sell America” and prompting central banks to seek safer assets like gold. Although gold prices have retreated since last month’s peak, the commodity’s value remains high at around $5,100 per ounce as of Thursday morning.
The Einhorn effect
Einhorn has made a name for himself by spotting financial warning signs. The hedge fund manager rose to prominence in 2002 after taking a short position in Allied Capital, a mid-sized financial firm. After speaking about his position at the Sohn Investment Research Conference, the company’s shares fell 20% as Einhorn accused the company of defrauding the Small Business Administration.
Einhorn followed a similar strategy in 2007 when betting against Lehman Brothers, sharing his thesis about the institution’s overexposure to subprime mortgage-backed securities at the Value Investing Congress. His insightful predictions about large companies, made through detailed presentations — and the share falls they caused — popularized the expression “Einhorn Effect”, used to highlight the manager’s marked influence on investor decisions. (This is not to be confused with the “Einhorn revolving shotgun” from the Call of Duty game.)
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Deficit fears drive bet on gold
Just as his first short bets exposed flaws in major financial institutions, the investor now sees structural vulnerabilities in the government’s fiscal and monetary policies. On Wednesday, Einhorn highlighted his philosophy on gold, saying that “our long-term thesis on gold is that our fiscal and monetary policy doesn’t make sense.” At current spending rates, the U.S. deficit-to-GDP ratio is expected to reach 6.7% by 2036, according to the CBO. However, Einhorn also noted that other major developed currencies maintain high deficit-to-GDP ratios, explaining why gold, rather than a foreign currency, could become the global reserve of choice.
Part of Einhorn’s confidence in gold is based on the belief that the Federal Reserve will make more rate cuts than currently expected. “I think one of the best bets right now is to bet on more cuts this year than expected,” he said. “I think by the end of the year it will be substantially more than two cuts.”
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Even with the better-than-expected January jobs report, which made the possibility of another cut seem distant, Einhorn is betting that Warsh as Fed chairman will be able to convince the committee to approve the cuts.
“He will make arguments that will persuade people,” Einhorn said.
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