Reports of the dollar’s imminent demise may be exaggerated. However, the sharp gold price surges in recent years highlight that a consequential change in the international financial system is underway.

Last week, gold prices surged to unprecedented levels, charging past the $5,000 an ounce and signalling what many analysts view as a deeper shift in the global financial order. Prices have risen more than 18 per cent since the start of this year. The current surge followed an extraordinary performance last year, when gold soared 64pc, its biggest annual gain in more than 45 years, though it slid down last week on rumours that the US Federal Reserve could get a more hawkish chair.

Over time, the yellow metal has evolved from merely being a hedge against inflation or a safe haven into a strategic asset in the reserve architecture of many emerging economies. At the heart of this shift is said to be a growing use of financial sanctions as a tool of political pressure by the United States. The threat of freezing of sovereign assets and restrictions on access to international payment systems have made countries across the world realise how vulnerable US-denominated reserves and holdings can be in growing global geopolitical uncertainty.

Central bank gold purchases have therefore emerged as a key driver of bullion demand in recent years. Monetary authorities have collectively purchased more than 1,000 tonnes of gold annually since 2022, more than double the average pace of the previous decade. Emerging-market central banks such as those of Poland, India, Brazil and Turkiye have been active buyers through last year, media reports suggest.

The objective has never been to abandon the greenback altogether, but to reduce dependence on an asset that can be ‘weaponised’ during periods of political confrontation with the US

Russia has led this trend since the naughties, according to some reports. It sharply pushed purchases over a decade ago. These efforts intensified after Moscow was excluded from the SWIFT international payments system and faced the prospect of its foreign exchange reserves being seized following the start of the war with Ukraine. Today, it holds one of the world’s largest official gold stockpiles.

Other emerging-market economies have learnt similar lessons. China’s approach has been gradual but strategic. Beijing has steadily reduced its holdings of US government bonds while increasing its gold reserves — it extended its gold-buying spree for the 14th consecutive month in December. According to the International Monetary Fund, gold holdings of emerging-market central banks have risen 161pc in two decades to around 10,300 tonnes.

American economist Peter Schiff told Fox Business that the gold rally should be viewed as more than a hedge.

“Central banks are buying gold to back up their currencies. They’re getting rid of dollars. They are getting rid of Treasuries,” he continued.

Yet, this doesn’t mean the dollar is on the verge of losing its reserve-currency status any time soon. Nor does anyone see de-dollarisation picking up momentum without a serious challenge from another major currency.

However, the fading assumption that dollar assets are entirely risk-free is already reshaping reserve management strategies. The objective has never been to abandon the greenback altogether — at least for now — but to reduce dependence on an asset that can be “weaponised” during periods of political confrontation with the US.

In other words, trust in the greenback has not disappeared, but it is no longer unconditional. And as that trust erodes at the margins, gold’s role in the global financial system, and its price, is being redefined. With many now viewing the greenback and major Western currencies as carrying unwanted risk of financial sanctions, further de-dollarisation efforts of their reserves by emerging market economies are expected to continue. Financial sanctions are becoming a less effective foreign policy tool.

The US knows this. Hence, the extensive use of tariffs has been a key feature of Trump’s trade and foreign policy ever since his return to the White House for a second term. Yet, like sanctions, the tariffs seem to have achieved only limited results. While his sweeping “liberation day” tariffs earlier last year triggered a sharp spike in gold prices, the subsequent threats against friends and foes both have sustained investor anxiety.

Besides aggressive central bank buying and aggressive Trump trade agenda, the gold price surge continues to be driven by sustained safe-haven demands on deepening global geopolitical uncertainty, trade disputes and easing US monetary policy. Investors’ demand through gold-backed exchange-traded funds (ETFs) has added further momentum to bullion prices.

Tensions between the US and Europe over Greenland, the lack of progress in US-brokered talks between Russia and Ukraine, and fears of additional sanctions targeting Iran have also reinforced safe-haven flows into gold. Unsurprisingly, then, some forecasts see gold peaking to around $6,000 an ounce if geopolitical risks persist and central bank demand remains strong. Analysts are increasingly describing the rally as a “crisis of confidence”.

The implications of this change extend well beyond financial markets. Elevated gold prices are often viewed by analysts as a warning sign for the global economy, signalling deep-seated unease and eroding confidence in major currencies and conventional financial systems.

Published in Dawn, The Business and Finance Weekly, February 2nd, 2026

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