Safe haven in gold: The true cost of the global gold rush

The world is witnessing a quiet but fierce race. Global central banks are increasing their gold reserves at a pace not seen in decades. The move comes amid rising geopolitical uncertainty, concerns about persistent inflation and potential policy changes from major powers, especially tariffs.

According to the latest data from the World Gold Council (WGC) and Reuters, 2024 saw a record net purchase by central banks, reaching more than 1,000 tonnes, and in the last quarter alone it reached 333 tonnes, up 54% year-on-year.

Why has gold, an ancient metal, become the focus of the digital financial age? Is this a wise hedge against the coming economic storm, or is this “fever” sowing the seeds of new systemic risks?

Gold - the halo that resides through time

The history of gold is closely linked to the history of human civilization and economy. Beyond its jewelry or industrial value, gold has affirmed its position as the ultimate "safe haven" whenever the world is in turmoil. It is not by chance that gold was chosen. Its unique physical properties (not oxidized, easily divided, easily transported) and relative scarcity have made it a reliable means of storing value and exchange for thousands of years.

Looking back at important historical milestones, the role of gold becomes even clearer:

Gold Standard: From the 19th to the early 20th century, many countries pegged the value of their currencies to a fixed amount of gold. This system, despite its limitations, created an era of stable exchange rates and promoted international trade. The collapse of the Bretton Woods system in 1971, when the United States abandoned the convertibility of the dollar into gold, marked the end of the official gold standard, but did not diminish the psychological and strategic appeal of the metal.

Great Depression (1929-1939): As confidence in the banking system and paper money collapsed, people and governments rushed to gold as a lifeline. Gold hoarding became a national priority to preserve wealth and stabilize the economy.

World War II (1939-1945): Gold was not only a means of financing massive military campaigns but also a strategic reserve asset, helping countries maintain economic strength and prepare for post-war reconstruction.

The 1970s oil crisis and inflation: The oil price shock, coupled with loose monetary policy, sent global inflation soaring. The US dollar plummeted in the wake of the “Nixon Shock.” Gold prices soared as investors sought to protect their assets from the erosion of inflation.

Global Financial Crisis 2008: The collapse of Lehman Brothers and the threat of a financial meltdown caused investors to lose faith in paper assets. Gold shined once again. According to the US Money Reserve, gold prices rose dramatically by about 150% from 2007 to 2011, affirming its role as a "safe haven" during the financial earthquake.

These historical lessons show a rule: confidence in gold is inversely proportional to confidence in the fiat monetary system and economic and political stability. Therefore, it is not surprising that in the current context, gold is once again being put on the strategic scale by central banks.

Gold has established itself as the ultimate "safe haven" whenever the world is in turmoil (Illustration: CyprusMail).

Current Gold Buying Wave: Stormy Underneath the Calm Surface

In the context of global economic instability, many countries have increased their gold purchases as a financial protection strategy. In 2024, central banks increased their gold purchases, with a total of more than 1,000 tons of gold, according to the World Gold Council. In particular, in the last quarter of 2024, gold purchases increased by 54% compared to the same period last year, reaching 333 tons.

China is a prime example, having continued to buy gold for 18 months through May 2024, although it has not disclosed the specific amount. After a six-month pause, the PBOC resumed net gold purchases in November 2022. By the end of March 2025, China’s gold reserves stood at 73.7 million ounces.

Similarly, Türkiye and India are both estimated to have purchased around 100 tonnes of gold each. Türkiye is increasing its gold reserves to diversify away from the US dollar, while India sees gold as an effective hedge against inflation. Poland also stands out, buying 90 tonnes of gold, with the goal of increasing the share of gold in its foreign exchange reserves to 20%, according to the World Gold Council.

"We maintain our long-term bullish outlook for gold as our most likely macroeconomic scenarios for 2025 remain bullish for the metal," said Gregory Shearer of JP Morgan. He also stressed that increased political uncertainty, particularly from Trump's tariff policies, will continue to drive demand for gold.

The World Gold Council forecasts that central bank gold demand will exceed 500 tonnes by 2025, contributing 7-10% to gold price performance.

Decoding the motivation and downside of the "gold rush" wave

Why are central banks acting in unison? There are three main drivers behind this trend:

Diversifying reserves away from the US dollar: China has been actively buying gold to reduce its dependence on the US dollar, according to Newsweek. Lina Thomas of Goldman Sachs noted that central banks in emerging countries, such as China, have increased their gold purchases since 2022 due to concerns about financial sanctions and US sovereign debt.

Inflation protection: Trump’s economic policies, such as tax cuts and increased government spending, could cause inflation. Gold, as a hedge against inflation, has become an attractive option. The US Money Reserve noted that gold prices rose 25% during the 2020 Covid-19 recession, demonstrating its ability to protect its value.

Geopolitical Risk: Geopolitical tensions cause countries to seek assets that are not affected by sanctions or political upheaval. Gold, as an “anonymous” asset, meets this requirement.

While buying gold benefits individual countries, the trend poses many risks for the global economy:

Reduced liquidity in the financial system: Gold does not yield interest and is not as liquid as government bonds. If global reserves are too heavily invested in gold, central banks may have difficulty responding to economic shocks, reducing liquidity in the financial system.

Rising gold prices put financial pressure on countries: Increased demand for gold has pushed the price of gold to a record high, surpassing $3,200 an ounce. This puts financial pressure on countries with limited budgets.

Gold shortage risk: If demand exceeds supply, the gold market could face a shortage, leading to sharp price swings. Fortune Europe reported that waiting times for gold withdrawals from the Bank of England have increased eightfold due to concerns about Trump’s tariffs.

Opportunity cost: Gold does not yield the same returns as stocks or bonds. Prioritizing gold can cause central banks to miss out on investing in yield-yielding assets, reducing the efficiency of reserve management.

The World Gold Council warned that if central bank gold demand falls below 500 tonnes, gold prices could come under downward pressure, adding further instability to financial markets.

Amidst the tariff storm and escalating US-China trade tensions, gold prices continued to rise, surpassing the threshold of 3,200 USD/ounce (Illustration: Kitco News).

Individual investors and gold: Staying calm amid the "fever"

As central banks ramp up their gold purchases, many individual investors are also drawn to the idea of ​​owning the precious metal. However, it is important to distinguish between a country’s strategy and that of an individual.

Why do central banks buy gold? On a macro level, hoarding gold makes sense. Gold is not affected by any country’s policies, reducing the risk of a devaluation of the US dollar or economic sanctions.

In the context of Mr. Trump's policies that could destabilize the global economy, gold has become a tool to protect national interests. The World Gold Council emphasized that gold is a "strategic asset" that helps countries maintain long-term economic stability, especially during inflation or financial crises.

However, for individual investors, over-investing in gold is not an optimal choice because:

High price volatility: Gold prices can fluctuate strongly in the short term. For example, after the US election, gold prices fell from $2,800/ounce to $2,618/ounce, indicating volatility risks. Since the beginning of the year, gold prices have increased from $2,600/ounce to nearly $3,300/ounce, a very high increase. In the past week alone, the world gold price has increased by about $270/ounce. Therefore, if the situation stabilizes, a drop of $200-300/ounce in gold prices in one week is also normal.

Opportunity cost: Investing too much in gold means missing out on investing in higher-yielding assets like stocks or real estate. Over the long term, stocks and bonds typically outperform gold.

Financial experts advise that gold should only account for 5-10% of an investment portfolio to diversify and protect against inflation, rather than becoming a primary asset.

Individual investors can consider gold ETFs or mutual funds that track the price of gold, which reduce storage costs and provide greater liquidity than physical gold. Goldman Sachs' Lina Thomas warns that individual investors need to be wary of gold's price volatility, especially when competing with central banks and ETFs.

While gold accumulation makes sense on a macro basis, experts advise individual investors to be cautious and not overinvest in gold (Illustration: TIL Creatives).

The trend of central banks increasing their gold purchases, especially after Mr. Trump’s re-election and the implementation of “reciprocal” tariffs with more than 180 countries, reflects deep concerns about economic and geopolitical instability. Many countries are looking to protect their economies by diversifying their reserves and reducing their dependence on the dollar.

The World Gold Council forecasts that central bank gold demand will exceed 500 tonnes by 2025, with a positive impact on gold prices. Goldman Sachs has also just raised its gold price forecast to $3,700 per ounce by the end of 2025, thanks to strong demand from central banks and ETFs.

In a volatile global economic environment, the role of gold will continue to be a topic of interest. Will gold be a safe haven or a new source of instability? The answer will depend on how countries and investors manage this asset in the coming years.

Source: https://dantri.com.vn/kinh-doanh/tru-an-trong-vang-cai-gia-that-su-cua-lan-song-gom-vang-toan-cau-20250416102839502.htm