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On September 17th America’s central bank, the Federal Reserve, trimmed interest rates by a quarter of a point, the first move in what markets suspect will be a longer easing cycle. Gold responded instantly. By the following week, prices had touched an all-time high of $3,749 per ounce in Asia. Exchange-traded funds (ETFs) backed by bullion reported their largest net inflows in over a decade. Even retail investors, normally the laggards, are joining in. For all the fintech froth of recent years, it is a 6,000-year-old metal with no yield and no coupon that is stealing the show.
Gold’s appeal is easy to romanticise, but its recent rally is down to cold economic logic. Yes, it is inert and glittering. But above all, it is non-political. And that, in a world of weaponised finance and declining trust in fiscal and monetary stewardship, is its rarest feature.
For much of the post-war era, American assets sat unchallenged at the apex of global finance. US Treasuries were the de facto risk-free asset; the dollar, the undisputed reserve currency. But both assumptions are now fraying. The Fed’s rate cuts, combined with ballooning fiscal deficits—above 6% of GDP and projected to widen—have unnerved global bond markets. Meanwhile political pressure on the central bank by President Donald Trump has raised questions about the institution’s independence. The dollar is still dominant, but less untouchably so.
As paper promises falter, tangible stores of value gain allure. Gold, which yields nothing, becomes more attractive when real yields—interest rates adjusted for inflation—fall or turn negative. This basic inverse relationship explains much of the metal’s historic behaviour. But the scale of today’s rally suggests that more structural forces are at work.
Gold is no longer merely tracking interest rate cycles. It is trading on the perception of systemic risk—fiscal indiscipline, geopolitical fragmentation and, above all, doubts about the reliability of Western financial institutions. In other words, it is being treated as insurance.
The most disciplined buyers of gold today are central banks, particularly in the emerging world. According to the World Gold Council, official sector demand topped 1,100 tonnes in 2024, the third consecutive year above that level. The People’s Bank of China has added gold to its reserves every month for nearly two years. Turkey, India and Singapore have all increased their holdings. Even Saudi Arabia, historically dollar-loyal, has started to rebalance.
That accumulation is strategic. Since 2022, when America and Europe froze Russia’s foreign exchange reserves overnight, the unspoken risk of Western sanctions has changed reserve management. Unlike dollars, euros or even SDRs, gold cannot be blocked or debased. It sits in vaults, not in clearing systems. For countries wary of Western leverage over global finance, that matters more than any yield.
The effect is cumulative. Central banks now hold roughly 17% of all the gold ever mined. That is up from around 10% in the early 2000s. As prices leap, their purchases have slowed in tonnage terms but continue in dollar value, providing a backstop to private flows. Even when households and traders waver, official buying cushions declines.
Gold is one of the few global assets shaped as much by cultural habits as financial calculation. In India, families still buy gold during wedding season regardless of global prices, though volume tends to dip when prices surge. Indian households are estimated to hold over 25,000 tonnes of the metal, making them collectively the world’s biggest private holders. In China, gold is a hybrid: part adornment, part investment. Bars and coins are popular among a growing middle class seeking to hedge against a wobbly property market and capital controls.
This type of demand—sticky and decentralised—gives gold an unusual resilience. When prices dip, retail demand picks up. When they rise, institutional interest takes over. The outcome is a self-reinforcing cycle, less prone to the wild reversals seen in other commodities. Even the quirks of the global gold trade—different bar sizes in London and New York, transport bottlenecks and tariff distortions—tend to be smoothed out by arbitrageurs who ensure the metal flows to where it is most valued.
Gold is not costless to own: storage, insurance and logistical risks persist. But ETFs and digital gold platforms have dramatically lowered the barrier for investors. As a result, gold trades with the liquidity of a blue-chip stock, but with a volatility profile closer to oil—reactive to macro shocks yet tethered to a long-term floor of physical demand.
At nearly $3,750 an ounce, gold is up almost 40% since January. Forecasts are galloping to keep pace. Goldman Sachs expects $4,000 by mid-2026. Some hedge funds talk of $5,000, especially if central banks in the West are forced into aggressive easing amid a downturn. But such estimates presume a near-complete erosion of investor trust in fiat money—an extreme, if not impossible, scenario.
What could reverse the rally? A stabilisation of US fiscal policy or a firmer-than-expected dollar could curb momentum. Geopolitical tensions could ease. Central banks could slow or even reverse their purchases if prices overshoot fundamentals. In the short term, prices may well overshoot before settling lower, as has happened in previous gold cycles, from the inflationary 1970s to the post-crisis spike in 2011.
Warren Buffett once dismissed gold as “unproductive”. That remains true. But in a world where productive assets are whipsawed by politics and policy, unproductivity has become a form of security. Gold’s virtue is not that it does anything—but that it reliably does nothing at all. ■
