At the start of the week, the price of gold crossed $5,000 per ounce for the first time ever, continuing a breathtaking rally that saw its price surge by 90% since US President Donald Trump’s inauguration last January.
While unprecedented, this surge is not entirely unexpected: an analysis by JP Morgan Global Research anticipated gold prices to average $5,055/oz by the final quarter of 2026, and reach $5,400/oz by the end of 2027.
Trump administration’s action has played a part.
Demand for gold as a “safe haven” instrument has surged in the wake of the Trump administration’s relentless upending of the global order. In January alone, Trump has removed Nicolas Maduro as President of Venezuela, threatened to conduct a military invasion of Greenland, and toyed with starting a war with Iran.
On the economic front, Trump escalated – and de-escalated – economic threats last week on eight European nations over Greenland after markets nosedived. He has since threatened 100% tariffs on Canada if it strikes a trade with China, and 25% tariffs on South Korea for allegedly failing to implement the trade deal it had implemented with the US last year.
That the US president sees every long-term friend and foe of the country alike as an adversary that is short-changing the US and owes its success to it is no secret. However, his actions and subsequent reversals are undoubtedly contributing to the very thing he wishes to avoid.
Looking to the US itself, investors are concerned about the autonomy of the Federal Reserve, the central bank that has, until now, dodged political influence in its decision-making. Trump’s relationship with the current Chair, Jerome Powell, is acrimonious, while his firing of Lisa Cook, a member of the Fed’s Board of Governors, is currently being challenged in the Supreme Court.
Trump insists that the Fed institute rate cuts to boost spending and growth, but low rates also weaken the dollar by encouraging inflation and driving foreign investors to seek higher returns elsewhere.
There was also the fear that the US may witness a partial shutdown at the end of this month over a spending package for the Department of Homeland Security, amidst its immigration crackdown. On Monday, Trump urged Congress to slash the disputed funding amidst continued violence in Minneapolis. The previous government shutdown, the longest ever, lasted 43 days, with a 1-2% projected decline in annualised real GDP growth in Q4 2025, according to the Congressional Budget Office (CBO). The CBO also estimated permanent losses between $7 billion and $14 billion (in 2025 dollars). Another shutdown soon after the last could prove to be just as catastrophic.
The combination of geopolitical chaos, political pressure on the Fed, shutdown risks, and massive debt has helped undermine confidence in the dollar itself. This erosion of trust has been visible in how the world’s central banks are behaving.
Central banks have been stockpiling since 2022.
Gold functioned as the basis for currencies until 1971, when the US abandoned the gold standard. Since then, central banks have held both dollars and gold as reserves.
Since the Asian crisis of 1997-98, central banks worldwide shifted from being net sellers of gold to net buyers. Data from the World Gold Council shows that global forex reserves increased from around US$3 trillion in 2000 to approximately US$13 trillion in 2014, after which they plateaued. The price of gold crossed $1,000 per ounce in 2008, during the global financial crisis and $2,000 per oz in 2020, during the Covid pandemic.
The present gold rally is widely credited to an uptick in central bank stockpiling in the wake of the Trumpian global order. However, this stockpiling began three years earlier, when the war between Russia and Ukraine broke out in February 2022. As G7 nations moved to freeze Russian assets hosted in Europe, many countries saw a need to diversify away from the US Dollar. Gold purchases by central banks averaged 400-500 tonnes annually before 2022, and have exceeded 1000 tonnes each year, more than double the pre-2022 average, according to the JP Morgan report.
While central bank buying explains sustained demand, what makes the current rally truly unusual is how gold is behaving in defiance of traditional economic logic.
Gold is breaking its own rules.
Throughout history, gold has served as the ultimate store of value – relatively scarce, durable, and symbolically associated with wealth and power. This makes gold a safe haven asset, insurance against currency failure.
Traditionally, a gold price rise has resulted from a depreciating US Dollar, falling interest rates, or an economic crisis. However, the present rally is accompanied by rising interest rates despite a weaker dollar, meaning conflicting factors are at work here. Gold now serves as a debasement hedge, protecting the purchasing power of currency against inflation or currency debasement, and as a non-yielding competitor to US Treasury securities, according to the JP Morgan analysis.
Treasury securities or government bonds have long been regarded as the safest investment: you lend money to the government and earn interest, with the assurance that the US government will always pay back. However, the US government debt currently stands at $38.49 trillion, and is growing faster than the economy (currently at $31.1 trillion). Amidst all the chaos, the question is whether the US government can back its debt, or if it will print money, and add to the inflation, in doing so.
That investors are flocking to gold is unsurprising, given the risk posed by government bonds. Given that both bonds and gold are rising together, the sense is that investors don’t trust any paper promises.
The dollar’s dominance is slowly eroding.
The US Dollar Index, which shows the value of the dollar against a weighted basket of six currencies, has steadily declined since Trump’s inauguration, due to Trump’s tariff announcements, the passage of the One Big Beautiful Bill Act, and the Fed’s rate cuts. Add to this Trump’s attacks on the Fed’s autonomy and an increasing push to de-dollarise: the dollar’s share in global reserves has fallen from 71% in 2000 to 58% today, a slow and steady erosion of trust.
Not everyone agrees on what’s driving the surge.
Robin J Brooks, Senior Fellow at the Brookings Institution and former Chief Economist at the Institute of International Finance, contends that the timing of the gold rally cannot be explained merely by central bank stockpiling.
In his newsletter, he notes that while central bank buying has been strong since 2022, the explosive rally only materialised in 2025. He also points to the surge in other metals (silver, palladium, platinum) as proof that retail investor speculation has played a major part alongside strategic central bank accumulation.
Brooks argues that the real reason for the surge is an escalating fear of an actual debt crisis, and not planned diversification. This would mean that the gold rally is indicative of a systemic crisis.
The gold rally, widely expected to last through 2026, reflects declining confidence in the global financial system, as we traditionally know it, comprising the US Dollar, Treasury bonds, and Fed autonomy. Whether driven primarily by central bank diversification or, as Brooks argues, by genuine debt crisis fears, the message is the same: investors are hedging against a system they no longer fully trust.
Curated by Aisha Patel
