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Gold jumped to a record $3,508.50 (€3,015.08) an ounce on Tuesday, fuelled by expectations of a US Federal Reserve rate cut and mounting uncertainty for investors.
The precious metal is seen as a haven for investors, with demand for it surging when trust in the stability of paper currencies or financial markets dips.
Earlier this year, gold prices surged when US President Donald Trump announced a raft of controversial tariffs against other countries.
Gold’s record-high value underscores deep unease over the global outlook and questions about the Fed’s independence as US President Donald Trump ramps up pressure on policymakers.
Dollar is no longer the ‘gold standard’
The rise in gold prices has come as part of a multiyear rally for precious metals.
Central banks from Asia to the Middle East have been accelerating their purchases for the fourth year in a row, adding a powerful tailwind to prices, with predictions being that at least 1,000 metric tonnes of gold will be purchased by governments for their gold reserves.
The move reveals a decreasing reliance on the US dollar at a time when Washington’s fiscal trajectory and political battles are clouding its standing as the world’s reserve currency.
A survey of 73 central banks conducted by the World Gold Council revealed that 95% of them are expected to increase their gold holdings over the next 12 months, while nearly three-quarters of them are anticipated to shrink their dollar reserves.
China, who is still locked in negotiations with the US over a more favourable trade deal, has been accumulating gold on a monthly basis, recording its ninth straight month of purchases in July.
De-dollarisation will hurt the world’s most reliable currency
For much of modern history, most national currencies were tied directly to gold — namely, governments guaranteed that paper money could be exchanged for a fixed weight of gold they had stored in their reserves.
Everyday transactions were carried out with paper money because it was far simpler than calculating gold values or carrying bullion, while governments backed those notes with gold held securely in their vaults.
After World War II, dozens of Allied nations gathered in Bretton Woods in New Hampshire to host the United Nations Monetary and Financial Conference.
They decided to create the International Monetary Fund and the World Bank, and established a system where the US dollar was pegged to gold at $35 an ounce.
In other words, one dollar represented 1/35th of an ounce. At the time, this peg gave the dollar unmatched credibility because the US then held most of the world’s gold reserves.
It provided stability for global trade and investment for about 27 years, until the US abandoned the gold peg in 1971, collapsing the Bretton Woods system.
Ghosts of Bretton Woods
Bretton Woods collapsed in 1971 when the US deficit and inflation drained gold reserves, making the $35 peg unsustainable.
President Richard Nixon ended dollar convertibility at the time, forcing currencies to float freely.
Once currencies began floating after Bretton Woods, foreign exchange or Forex markets became the arena where their values were set.
Instead of governments guaranteeing fixed rates, traders, banks and central banks now buy and sell currencies against one another, with prices at times shifting by the second.
Now, US policies are once again influencing the gold-buying habits of central banks, and it is particularly symbolic that gold has surged past $3,500 an ounce — an increase of more than 10,000% from the $35 peg set under Bretton Woods after World War II.
