Gold Rush 2.0: Why Are Global Central Banks Hoarding Gold Like It's 1971?

Former JPMorgan Chase Global Chief Economist (Ph.D in Economics) & Current Global Keynote Speaker

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On August 15, 1971, President Richard Nixon ended the direct convertibility of the U.S. dollar into gold at the fixed rate of $35.00 per ounce (dubbed the "Nixon Shock") and allowed the price of gold to float freely. This triggered a surge in gold buying as global central banks and investors sought protection from currency instability and rising inflation expectations. I still remember the price of my most prized possession: a gold chain my mother gave me when I was 12 years old. She purchased my chain at a discount from a neighbor who had pawned it for $50.00, only to see its value rise to $400.00 over the next four years. It was the most expensive asset I owned growing up in a low-income New York City housing project! In memory of my mom, I continue to wear that necklace chain!

Today, at the heart of the global central bank gold-buying spree is a sharp increase in geopolitical tension. The war in Ukraine, strained U.S.-China relations, the conflict between Iran and Israel, and growing multipolar instability, as the U.S. moves closer to a strategy of isolationism, have made gold an increasingly attractive safe-haven asset. Fortunately, the decision to accumulate gold has also proven profitable as prices have risen dramatically!

Source: CNBC

Unlike fiat currencies or digital reserves, gold is not dependent on the promises of a counterparty. It cannot be devalued by another nation’s policy decisions or be impacted by international sanctions. This characteristic is crucial in a world where governments are increasingly deploying economic tools, such as reserve freezes or transaction bans, as geopolitical weapons.

When the U.S. and its allies seized approximately $350 billion in Russia’s monetary assets following the invasion of Ukraine, it marked a pivotal moment for many global central banks. Numerous non-Western countries, especially those in emerging markets, recognized that relying on U.S. dollar reserves could pose significant geopolitical risks. In contrast, gold remains immune to such actions, bolstering its value as a politically neutral means of storing wealth. Consequently, gold now comprises 19% of total global central bank reserves, making it the second-largest asset held by global central banks, trailing only the U.S. dollar, according to the European Central Bank.

Concerns About the U.S. Dollar and the Weaponization of Finance

The dollar remains dominant in global trade and finance, but some cracks in the foundation of dollar hegemony have begun to appear. The weaponization of the dollar—most notably through sanctions—has introduced a perceived risk to countries with extensive holdings denominated in dollars. Central banks in countries such as China, India, Turkey, and Brazil are among those accelerating their efforts to diversify their portfolios.

Moreover, the growing fiscal challenges in the United States, including persistent deficits, ballooning national debt (now over $36 trillion), and questions about the long-term stability of U.S. political institutions, have added urgency to the diversification effort. Although the dollar’s demise is far from imminent, the trend toward reducing dollar exposure is unmistakable.

Inflation, Monetary Uncertainty, and the Hedge Function of Gold

The COVID-19 pandemic triggered extraordinary monetary and fiscal policy interventions worldwide. With interest rates near zero (or even negative) for extended periods, inflation pressures built up, culminating in a surge in global price levels from 2021 through 2023.

Even as inflation has somewhat receded, the credibility of fiat currencies and the independence of central banks have come under scrutiny. When the U.S. President calls the Fed Chairman “stupid” and “truly one of the dumbest, and most destructive, people in Government,” it does not inspire much confidence in the future independence of the U.S. Federal Reserve.

Not surprisingly, gold, long viewed as a hedge against inflation and currency devaluation, has regained appeal among investors concerned about the long-term preservation of purchasing power.

Unlike bonds or foreign exchange reserves, gold is a tangible asset with no default risk. U.S. Treasury securities, while historically viewed as ultra-safe, are nonetheless liabilities of the U.S. government. Gold does not rely on the solvency or political stability of another nation. For countries that have reasons to distrust the Western financial system or anticipate potential financial repression, holding physical bullion offers a comforting layer of security.

A 2025 survey of central banks conducted by the World Gold Council (WGC) found that 95% of central banks believe global gold reserves held by all central banks would increase over the 12 months, while 43% of central banks surveyed believed their gold reserves would also increase over this same period! The survey was conducted between February 25, 2025, and May 20, 2025, by the WGC. None of the central banks surveyed expected gold reserves to decline over the next 12 months!

If these buying plans come to fruition, it would mark the fourth consecutive year of massive purchases by global central banks. Although this trend may slow, the attractiveness of gold as a diversification asset is likely to continue, as emerging market central banks continue to add gold to their reserve holdings. Countries such as China, India, Kazakhstan, and Uzbekistan remain aggressive buyers, often citing strategic autonomy and economic resilience as their primary motivations for doing so.

Persistent Buying Despite High Gold Prices

What’s remarkable is that central banks have continued to buy gold even as its price has surged past $3,000 per ounce. Historically, high prices have tended to dampen demand in the official sector. But the current wave appears less price-sensitive, indicating that reserve policy objectives—rather than speculative profit—are driving the purchases.

De-Dollarization Trend

While the dollar will likely remain the dominant global reserve currency for years to come, many countries are hedging their exposure. A full-scale “de-dollarization” is unlikely in the short term, but the gradual shift toward multipolar reserve structures—featuring greater roles for gold, the Euro, the Japanese Yen, the Chinese renminbi, and regional currencies—points to long-term diversification.

Gold offers a natural bridge asset during such transitions. It requires no infrastructure overhaul, can be held and transferred with minimal reliance on Western institutions, and has centuries of credibility behind it.

Gold Holdings Offer Central Banks Options

Despite gold's illiquidity compared to cash or Treasuries, central banks have tools at their disposal to convert gold holdings into usable funds:

Central banks can temporarily lend or swap their gold holdings with other institutions—often other central banks or bullion banks—in exchange for currency. These agreements provide short-term liquidity without triggering outright sales. For example, during times of financial stress, a central bank might swap gold for U.S. dollars to stabilize its currency or fulfill international payment obligations.

Another monetization strategy involves pledging gold as collateral for borrowing. This allows central banks to leverage their bullion without parting with it. Institutions like the Bank for International Settlements (BIS) facilitate such transactions, providing a means to maintain gold reserves while addressing short-term funding requirements.

Though rare, central banks can also sell gold directly to raise cash. However, most are reluctant to do so, especially if gold is being accumulated as a strategic asset or to hedge against future instability. The experience of the U.K.'s infamous gold sales under Chancellor Gordon Brown in the early 2000s—later dubbed “Brown’s Bottom” due to the low-price levels—serves as a cautionary tale.

But Can this Trend Reverse?

Despite strong momentum, it’s essential to consider counterarguments:

Gold doesn’t pay interest. In a rising-rate environment, the opportunity cost of holding non-yielding assets increases. Central banks under pressure on their reserve income may choose to rebalance toward higher-yielding instruments, especially after a swift pace of accumulation, if global bond markets stabilize and inflation decreases. However, gold’s value as a hedge often outweighs the absence of yield.

Physical gold requires secure storage, transportation, and periodic auditing—all of which entail cost and complexity. While major central banks typically manage these logistics with ease, smaller or less developed countries may struggle to expand their physical gold holdings rapidly.

Although gold is a long-term store of value, it can show significant short-term volatility. If prices were to drop too sharply, some central banks might face domestic criticism for overpaying and might pause further acquisitions.

Finally, if geopolitical tensions ease significantly or if the credibility of Western financial institutions improves, the perceived need for gold as a hedge could diminish. However, given the current trajectory of global power dynamics, this seems unlikely in the near term.

Summary and Concluding Thoughts

The resurgence of gold buying among global central banks reflects a profound shift in how monetary authorities perceive risk, sovereignty, and resilience. Driven by geopolitical uncertainty, inflation risk, and a reevaluation of the U.S. dollar’s role, the movement toward gold is more than a passing phase—it represents a structural realignment of global reserve strategies.

If the world remains politically fragmented, economically unstable, and strategically complex, central banks—especially in emerging markets—are likely to keep building up their gold reserves, even if the pace of buying slows down from recent levels. Gold's status as a neutral, durable, and sovereign store of value is likely to remain secure.

In a world where trust is in short supply, gold offers certainty, shining not just as a metal but as a symbol of enduring value.