‘The dollar is losing credibility’: why central banks are scrambling for gold
Quick Summary
Global central banks are aggressively purchasing gold, signaling a significant shift in economic strategy driven by geopolitical instability and declining confidence in the U.S. dollar. This gold-buying spree, which has pushed prices to record highs, is a deliberate move to create a financial safety net in an increasingly unpredictable world. The dollar's dominance is waning, with its share of global reserves dropping from 66% to 57% in a decade, largely due to unpredictable U.S. policies and the use of economic sanctions, such as freezing Russia's assets. With no clear currency successor, gold has re-emerged as the default safe-haven, surpassing the euro to become the second-most important reserve asset. A major accompanying trend is repatriation, where countries like China, India, and Poland are moving their gold reserves home from traditional hubs like London and New York to ensure security and reduce reliance on Western powers. This de-dollarization reflects a fracturing global order, though experts caution that a world forced to barter in gold would signify a much deeper, more chaotic economic crisis.
Central banks around the globe are on a gold-buying spree, a move that points to a major shift in global economic thinking. According to a recent Invesco survey of 50 central banks, almost half are...
Central banks around the globe are on a gold-buying spree, a move that points to a major shift in global economic thinking. According to a recent Invesco survey of 50 central banks, almost half are planning to stock up on even more of the precious metal. This isn't just about hoarding shiny bars; it's a direct reaction to a world rocked by geopolitical chaos and dwindling confidence in the U.S. dollar.
Jorgovanka Tabaković, Serbia's central bank governor, shared a frantic story that perfectly captures the current mood. She described how millions of dollars in gold bars, meant for a secure vault in Belgrade, were left sitting on a Swiss airport runway. Why? Because perishable goods like flowers were given priority on the air freight. "We learned this the hard way," she admitted at a conference late last year.
And Serbia is hardly alone. Central banks are snapping up gold at a pace that defies decades of economic tradition, helping to drive its price to record highs. With growing unease over Washington's sway on the U.S. Federal Reserve, the price recently touched a record $4,643 an ounce, and some analysts think it could blow past $5,000 this year. As the old American-led global order continues to fracture, both official institutions and private investors are flocking to gold as a safe bet. Over the past decade, the amount of gold in central bank reserves has doubled, now accounting for more than a quarter of their total holdings—the highest level in nearly 30 years.
Experts say this isn't just a side effect of the rising price. It's a calculated strategy to create an insurance policy for an increasingly unpredictable world. Many countries are also working to bring their gold stored overseas back home, further reducing their reliance on the U.S. dollar.
"We have moved from Pax Americana to global discord, geopolitically," explained Raphaël Gallardo, chief economist at Carmignac. "Investors—private and sovereign—believe their strategic reserves are no longer safe in dollar terms, as they can be confiscated overnight. The dollar is losing credibility as the nominal anchor of the global monetary system because the Fed is losing credibility, and US Congress is losing its credibility."
For much of the last century, the dollar was the undisputed king of reserve currencies, the essential oil that kept the gears of global finance and trade turning. Currencies used to be pegged to the value of gold, but President Richard Nixon cut that tie for the dollar during the economic turmoil of the 1970s, letting currencies float freely ever since. But the dollar's reign is showing cracks, thanks in part to unpredictable U.S. policymaking and the heavy-handed use of economic sanctions, like freezing Russia's central bank reserves after the invasion of Ukraine. As a result, the dollar's share of total central bank reserves has slipped from about 66% a decade ago to around 57% today.
With no obvious replacement—the euro, yen, or yuan just don't have the same global reach—institutions are circling back to gold, the world's oldest store of value. In fact, thanks to its soaring price, gold actually overtook the euro last June to become the second-most important reserve asset. "There is no one to replace the dollar. So gold is shining by default," Gallardo remarked, echoing John Maynard Keynes's famous description of gold as a "barbarous relic" that is "nobody’s debt."
The same Invesco survey found that two-thirds of central banks are planning to bring their overseas gold stockpiles home. "Gold has always been the ultimate safe haven," said Rod Ringrow, Invesco's head of official institutions. "The last four years have seen this whole concept of the weaponisation of reserves... So central banks have started to look at that and say: ‘If I want gold reserves, am I comfortable with them in-country, or at other depositories?’"
Traditionally, central banks kept their gold in the global bullion hubs of London, Switzerland, and New York. The Bank of England's vaults, which hold about 400,000 bars worth over half a trillion dollars for 70 different institutions, are still a major center. But this push to bring gold home has created new problems. Venezuela, for example, can't get to $2 billion of its gold held by the Bank of England because the UK government doesn't recognize its regime. Russia has also made threats against Belgium, where a large chunk of its frozen reserves are held.
Countries like India, Hungary, Turkey, and Poland have been actively moving their gold back. Poland repatriated hundreds of tonnes of gold it had moved to London, the US, and Canada at the beginning of World War II. Germany kicked off this trend back in the 2010s, bringing back bullion it had moved to the US and France during the Cold War out of fear of a Soviet invasion.
The biggest gold buyers today are often the nations feeling the most geopolitical heat. According to the World Gold Council, central bank purchases jumped 10% in the year to September, with Poland, Kazakhstan, Azerbaijan, and China leading the pack. China, in particular, has been on a buying spree, adding over 2,000 tonnes to its reserves in an effort to build its financial muscle and challenge Washington's dominance. Still, the U.S. is thought to have the world's largest reserve with over 8,000 tonnes, though its Fort Knox vault hasn't been audited since 1953.
In a move that now looks painfully shortsighted, the UK sold off 401 of its 715 tonnes of gold under Chancellor Gordon Brown in the late 1990s and early 2000s, when prices were at rock bottom. While some have wondered if cryptocurrencies could one day compete with gold, central banks are still too wary of their wild price swings. For now, the dollar's throne is looking wobbly, but as Jonathan Fortun of the Institute of International Finance warns, "I don’t think the dethroning of the dollar would be the main concern if we arrived to the stage where we were to be bartering in gold. That would be a second round effect—we’d have many other issues."