The recent strength in gold, on the other hand, can be attributed to a combination of economic uncertainty, rising inflation expectations and a shift in central bank policies.
Economic uncertainty has traditionally pushed investors toward gold as a safe haven, a trend that has clearly gained traction. Additionally, the Federal Reserve’s potential shift toward easing monetary policy, rather than tightening, has further bolstered gold’s appeal. However, a key driver of gold’s recent performance is the unprecedented rate at which global central banks, particularly those in China, India and Russia, have been stockpiling the metal. According to the World Gold Council, these central banks have been purchasing over 1,000 metric tons of gold annually over the past three years.
This accumulation reflects a strategic move away from holding reserves solely in U.S. dollars – a response to actions taken following Russia’s invasion of Ukraine, which froze dollar-denominated assets and excluded Russia from the SWIFT payment network. This shift may have accelerated in recent months due to perceived adversarial U.S. trade and tariff policies, prompting key trading partners to diversify their reserve instruments. While the change is modest, it is significant: the share of dollar reserves among global central banks has dropped from over 60% in 2022 to 57% today.
Moreover, gold’s strength may be partly a result of bitcoin’s weakness. The total market capitalization of cryptocurrencies, estimated at around $2.8 trillion, has pulled money away from the more traditional dollar hedge of gold. It would stand to reason that if bitcoin was in a period of weakness, perhaps investors seeking safety and stability might turn to gold, which has a history spanning thousands of years as a reliable store of value.
