The New Gold Standard: Are Central Banks Anticipating a New Financial Order or Adopting Diversification Strategies?
Illustation by Renee Xia
For decades, gold was viewed as a relic hoarded by traditionalists while financial markets pursued fiat currencies and digital investments. As retail investors continue to sell their reserves with inflation and growing financial stressors, central banks are quietly hoarding gold at record levels. In 2022 alone, central banks added 1,136 tonnes of gold to their reserves, the highest annual figure since 1950. With over 1,000 metric tonnes bought in 2024, this trend has shown no signs of slowing. BRICS nations including China, India and Russia are leading this change, raising concerns over why emerging markets are stockpiling gold in an era dominated by the U.S. dollar and digital assets.
Geopolitical tensions, including U.S.-China trade disputes and the Russia-Ukraine war amid looming U.S. tariff threats, have forced nations to reconsider U.S. dollar reliance and embrace a de-dollarization movement. Gold, a 5,000-year-old store of value, is making a comeback as a core reserve asset and a financial safe haven for central banks globally. This article aims to explore this trend in global financial markets as it signals a precursor to shifting economic power across nations and addresses possible implications of the same.
The Gold Race: Who’s Hoarding and Why?
Upon closer examination of central bank activity, global gold accumulation is a clear pattern that indicates a strategic move rather than a widespread investment. For instance, India has added 72.60 tonnes of gold in 2024, and China has gained 44.17 tonnes over the same period. Additionally, Russia is also steadily adding to its reserves despite global sanctions. These gains signal deeper motives than just diversification, instead reflecting growing unease with U.S. monetary policy as well as the U.S. dollar’s role as the world’s major reserve currency. Emerging economies, such as BRICS nations, are at the forefront of this movement.
Figure 1: Total central bank reserves by country, across the years 2020, 2022 and 2024. Amongst the list, BRICS nations China, Russia and India are all within the top ten reserves globally.
For instance, in recent years, China has been moving towards internationalizing the Renminbi through opening their domestic bond market to foreign investment with aims of increasing the yuan liquidity and promoting the same as a global reserve asset. Moreover, bilateral currency swap agreements between the People’s Bank of China (PBoC) with over 40 foreign central banks has helped China settle trade using local currencies, supporting yuan usage globally. Offshore yuan (CNH) markets in regions such as Hong Kong and Singapore have also aided in extending the reach of the yuan. Combined with the layered accumulation of gold – a safe haven asset known to provide stability during volatile economic periods – it is clear that the nation is intent on moving away from U.S. dollar dependence as it prepares for the yuan’s pivotal role in international trade markets.
On the other hand, Russia’s recent portfolio increases have been a key hedge tool against asset freezes, such as the $300 billion of central bank assets that were frozen in 2022 by the West as a response to the invasion of Ukraine. With Russia’s gold reserves increasing by $96 billion this year as a result of skyrocketing gold prices, one-third of those assets were offset. Amongst wartime finance strategies, gold has served as a critical tool alongside cryptocurrencies and netting in circumventing traditional payment systems affected by sanctions, with partners across the Middle East, Southeast and Central Asia. Illicit cash-for-gold deals with the UAE and Turkey in which Russian gold was exchanged for U.S. dollars, UAE dirhams, euros, and more triggered additional U.S and U.K.-backed sanctions in 2024.
Figure 2: Post-pandemic changes to central bank gold reserves among G20 nations.
Meanwhile, India has been silently outpacing G20 member nations in gold purchases, and in 2024 the Reserve Bank of India (RBI) also held twice as much gold as China as a percentage of total reserves (8.98 percent as opposed to 4.64 per cent). This is not a new move, as the RBI has been increasing gold reserves since 2017 in response to inflation pressures and in hopes of diversifying foreign currency assets. Additionally, recent global geopolitical conflicts such as the West’s response to Russia’s invasion have further encouraged purchases. Gold has served as a risk mitigation tool as India reconsiders the reliability of reserves in traditional currencies which could be immobilized by other banks and governments. Overall, while the motivations for each of these individual BRICS nations vary, their collective behaviour suggests a desire for increased financial sovereignty.
De-Dollarization: Hedge or Hostile Move?
De-dollarization refers to a significant reduction in the use of the USD in trading and financial transactions, which thereby decreases demand for the dollar. This is particularly noteworthy as the U.S. dollar has maintained its position as the global reserve currency for almost 80 years. In 2024, 57.8 per cent of all foreign exchange reserves were in the U.S. dollars. International tensions, such as U.S.-China trade disputes, the Russia-Ukraine war as well as sanctions imposed on nations such as Iran and Venezuela have led many nations to reconsider whether their economic futures should depend heavily on a single foreign currency. In this process, gold has been a key hedge tool.
For instance, Russia has begun to settle oil trades in rubles and yuan, while China has signed commodity purchase agreements with Brazil and Saudi Arabia in yuan. BRICS nations are also actively discussing alternatives to SWIFT, which is the dollar-dominated global payments system. These shifts may not dethrone the U.S. dollar overnight, though it does represent a significant erosion of its dominance. Gold’s resurgence as a hedge in this regard underscores unease about U.S. dollar-centric systems, especially as countries begin to shift from the dollar to national currencies.
A New Gold Standard
Could this newfound gold rush signal the return of a global gold standard? Skeptics are divided, mentioning the many practical challenges associated. Specifically, annual mining production contributes only 2-3% to gold stock and tying currency issuance to gold would prove extremely detrimental in response to times of economic turmoil. Such a standard may also amplify recessions as central banks have less policy flexibility and cannot easily expand the money supply during economic downturns. Likewise, gold can easily destabilize economies with sharp short-term price fluctuations. Additionally, there are numerous global scale complexities as a shift to a gold standard would necessitate widespread structural change from defining currency-gold ratios to remapping trade infrastructure. At the moment, concerns regarding governance risks further weaken the appeal, as oversight of the gold market is heavily influenced by private entities like the LBMA.
Figure 3: Fluctuation in gold prices since 1971.
In the meantime, BRICS nations have discussed the possibility of a gold-backed currency for the facilitation of trade. Per OMFIF analysis, this would allow for an alternative to the dollar while providing member nations an insulation from U.S.-imposed sanctions. However, coordination between BRICS members is a major hurdle, as differences in the size and structure of their economies as well as monetary policy goals remain. Even so, a gold-backed currency carries symbolic weight, signaling increased dissatisfaction with the status quo. Although a formal return to gold-backed currencies may not fully occur, the substantial accumulation of gold by central banks is enough to highlight quiet shifts in the global financial landscape.
Investor Takeaways
If central banks continue stockpiling gold, should retail investors follow suit? While gold remains an attractive hedge tool against inflation and currency depreciation, it remains a scarce commodity with price swings driven by mining supply constraints, U.S. dollar strength, economic uncertainty, and demand from consumers and investors. Unlike central banks, retail investors do not have the resources to weather long-term gold price volatility. Thus, it is generally recommended that gold be a portion of a well-diversified portfolio to provide investors with protection without overexposure to a single asset. With gold prices reaching record high levels, it is critical that retail investors avoid chasing trends and instead use gold as a tool for wealth preservation wisely.
Conclusion
Gold is more than its allure as a precious metal – it underpins shifting global economic
power, ironically as the very asset central banks once sought to move beyond. Over the years, gold has been the ultimate safe haven in times of financial crisis. With fiat currencies wobbling under mounting debt, inflation and geopolitical uncertainty, gold remains a reminder of past and perhaps future financial systems. Whether the world soon faces a new gold-backed financial order or this aggressive accumulation remains prudent diversification, in times of turmoil, gold has proven to be the ultimate store of power – and central banks know it.