It’s key to differentiate between short-term speculators and long-term fund managers/central banks.
For speculators there is no such thing as a defensive asset – only assets that appreciate in value. For fund managers and central banks all asset purchases/FX flows are done very gradually and often in unison.
The US dollar is gradually losing its international significance due to the myriad of negative developments in the US since 2007. The financial crisis of 2008 and the consequent rush for USD due to deleveraging underlined the level of addiction to the USD within the global economy. Since then, most central banks have been gradually diversifying their FX reserves away from USD into EUR, JPY and CHF – Russia has been one of the keenest to re-balance their reserve base both for economic and political reasons (Russia was one of the first nations to have a >50% of FX reserves in alternative currencies).
The biggest problem facing large reserve managers and central banks is the lack of a credible alternative to the US Dollar. The Swiss franc is immensely strong and safe but Swiss capital markets are simply too small to accommodate a large proportion of the World’s capital (recent news of intervention and fees for deposits demonstrate this). The Euro has huge political problems that could potentially lead to its demise or member states being excluded – this uncertainty is preventing a strong move into the Euro by large asset managers. The Yen likewise, is not fantastic alternative because of Japan’s economic malaise for the past two decades; Japan is currently running a 200% debt-to-GDP ratio which would have already been catastrophic if not for the fact that most Japanese debt is domestically owned. Gold is often in the media spotlight whenever crises materialise because of its store of value and perceived safety value – however, Gold is also not a tangible alternative to the US dollar mainly because there is not enough of it in existence. A big reason why Gold is outperforming so well is because of speculative buying in expectation of further bad news around the globe. The same goes for the Swiss franc.
One not so talked about aspect to Gold is the level of shadow buying by China. Chinese reserve managers are amassing large Gold reserves for various reasons. One is to internationalise the Yuan, make it more credible and widely used but also to pressurise the Dollar for political and economic reasons – The Yuan is closely pegged to the US dollar meaning China benefits if Gold rises, the Dollar falls and the Yuan weakens in real terms as this allows for Chinese exports to remain strong plus dominate world trade.
All in all, it would be excessive to say CHF, JPY and Gold are “replacing” the US dollar; rather, other currencies and stores of value are commanding a bigger share of global capital markets because the Dollar’s sole dominance of international capital markets has been severely diluted by thefinancial crisis and its consequent effects.