Central banks, the major force behind the unprecedented rally in gold prices in recent years, are likely to continue their buying streak in the coming months and years. Analysts believe this could support the yellow metal in staying at elevated levels, with prices currently hovering around $3,335 per troy ounce in the international market.
Central banks worldwide are increasingly viewing gold as an alternative reserve to the US dollar, especially as the dollar is being used more frequently as a geopolitical tool, most notably through sanctions, asset freezes, and trade restrictions, which has accelerated the search for alternatives, and gold has emerged as a suitable option.
Gold is emerging as the reserve of choice in a de-dollarising world
The world’s dependence on the US dollar has been a cornerstone of the global financial system for nearly eight decades. However, domestic brokerage firm InCred Equities said that “cracks in the foundation are widening and the process of de-dollarisation is no longer speculative.”
According to the brokerage, countries like China, Russia, and Iran have clear strategic reasons to reduce their dollar exposure. Even allies now quietly acknowledge the need to hedge against future US policy shifts.
“As global trade flows become more diversified, the reliance on a single currency is increasingly seen as inefficient and risky. Cross-border trade in yuan, dirhams, roubles, and rupees is growing—not yet at scale, but fast enough to signal a change,” InCred added.
The brokerage also noted that “central banks are buying gold at record levels” and pointed to bilateral agreements such as “India-UAE, China-Brazil, and Russia-Iran” experimenting with local currency settlements.
“Nevertheless, the US dollar remains the king in FX markets and global reserves. But empires don’t fall in a day. The British pound lost its crown slowly, over decades. The same path could await the dollar,” the note said.
“The erosion is gradual—until it’s not. Whether it takes 10 years or 30, the direction is clear. The US fiscal position is deteriorating, and its politics are increasingly unstable. As confidence wanes, the world is ready with its plan B—i.e., islands of currency swaps and gold,” the brokerage underscored.
Over 1,000 tonnes of gold added annually by central banks for 3 years
According to the World Gold Council, central banks have accumulated over 1,000 tonnes of gold in each of the last three years, a significant increase from the 400–500-tonne average over the preceding decade.
This surge in demand has contributed to a sharp rise in prices, with spot gold climbing from $1,828 to $2,624 over the past three calendar years. So far this year, it has even touched $3,500. Notably, gold gained $1,000 in just eight months, signaling sustained demand not only from central banks but also from other market participants.
In addition, the recent survey conducted by the WGC showed that central banks are expecting a further expansion in gold reserves amid geopolitical and economic instability. Over 95% of reserve managers anticipate that central banks will continue to boost their gold holdings in the next 12 months, according to WCG.
This is 17% higher than the findings of 2024. The survey also found that 43% of central banks are planning to increase their gold holdings within the next year. Interestingly, none of the WGC respondents anticipate a decline in their gold reserves.
InCred see gold surging to $5,000 on sustained central banks demand
In recent years, several pivotal events have positioned gold as the preferred reserve asset for central banks. According to InCred, the first was the freezing of Russia’s USD assets by the EU and the US, which exposed the vulnerability of fiat currency reserves.
Secondly, the brokerage pointed to the decline of the yuan as a viable alternative reserve currency, owing to China’s increasingly unpredictable policy environment.
Most importantly, it cited US President-elect Donald Trump’s warning that any move away from the dollar would be viewed as an attack on the currency. Trump cautioned that countries pursuing de-dollarization could face a 100% import tariff from the US.
Meanwhile, traditional demand for gold remains strong, adding further fuel to its rally. “Don’t be surprised if gold touches US$5,000 per ounce in the near future,” the brokerage said.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
