Historic Gold Rally
The price of gold surpassed $5,000 per ounce for the first time, signaling a significant rally in the market. This increase is attracting significant investments from both small investors and large institutions, including central banks.
Central Banks' Gold Investments
- The Reserve Bank of India (RBI) saw its foreign exchange reserves rise by more than $14 billion, with a significant portion attributed to the appreciation in its gold reserves.
- The RBI holds 880 tonnes of gold, which now constitutes 17% of its forex reserves, up from 12% a year ago.
- Despite this, the RBI was not the largest buyer; Poland, Kazakhstan, and Brazil led with purchases of 95, 49, and 43 tonnes respectively, according to World Gold Council data.
Factors Influencing Gold's Demand
US President Donald Trump's trade policies and the move towards a multipolar world are pushing entities away from the US dollar, contributing to the rise in gold's value as a safe-haven asset.
Debasement of the US Dollar
- Trump's actions have led to a 9% depreciation of the US dollar in 2025.
- This has increased the attractiveness of gold amid global economic uncertainties.
De-dollarisation in Commodity Markets
- JP Morgan notes a trend of pricing energy in non-dollar contracts, influencing commodity markets.
- The RBI has reduced its US government bond holdings, which fell to $186.5 billion by November 2025.
Global Bond Holdings and Capital Flows
European and Asian countries are diversifying away from US debt, driven by political tensions and economic strategies.
- China's holdings of US debt are at a 16-year low.
- European entities are threatening to cut US bond holdings, noting geopolitical issues and economic pressures.
Impact of De-dollarisation
- The share of the US dollar in global forex reserves dropped to a 30-year low of 58.5% in 2024, compared to 71% in 1999, as per the IMF.
- Meaningful de-dollarisation could impact the US's global economic influence and military funding.
Despite these trends, the US dollar remains the predominant currency in global markets, involved in 89% of forex transactions. However, ongoing policies under Trump's administration might further influence the shift away from the dollar.
