Global gold grab
View(s):I have written about gold price in this column a few times—most recently on November 17, 2024. Since early last year, gold prices have been climbing rapidly. But in 2025, the rise has been nothing short of explosive.
Back in January 2024, a troy ounce of gold (about 31 grammes) cost around US$ 2,000. This week, it hit $ 4,300—more than double. In just the past 10 months, it has surged by 65 per cent.
Gold bangles
Lenders and investors
Rapidly changing gold prices have created both winners and losers. In the current gold boom, two groups stand out as major winners: gold-based lenders and gold asset investors.
Gold-based lending is practiced by both banks and non-bank financial institutions, including pawning businesses. While it is not a common banking activity worldwide, countries like Sri Lanka have embraced it—especially where financial inclusion is limited and access to credit is constrained. In recent years, gold-backed loans in Sri Lanka have surged, driven by income shocks and rising inflation.
Globally, non-bank financial institutions dominate the gold-centric lending space. As gold prices soared in 2024 and 2025, the value of gold pledged as collateral rose sharply. This allowed lenders to offer larger loans and earn higher profits. The boom in gold lending could also boost the performance of these companies’ shares on stock exchanges.
Losers in gold rush
The second group of winners in the gold surge are investors. Around 45 per cent of global gold demand comes from investment, while another 13 per cent is driven by central bank accumulation.
Those who hold wealth in gold—including central bank reserves—have seen strong capital gains as gold prices rise. These investors range from large wealth management firms to individual retail buyers. In some countries, people have even been lining up at gold dealers to place buying and selling orders, hoping to lock in quick profits.
On the flip side, jewellery companies and consumers are among the losers. Rising gold prices have dampened demand, hurting jewellery businesses and their shareholders. The jewellery sector accounts for about 25 per cent of global gold demand, with another 17 per cent used in other industries. All are facing a slowdown.
High prices make gold less affordable, prompting many consumers to choose lighter pieces or delay purchases altogether. The result is the reduced demand for jewellery companies.
Safe haven
Today, I am going to explore the deeper economic implications behind the recent behaviour of global gold prices. At the heart of this trend is the growing demand for gold as a safe haven investment. When investors anticipate an economic crisis, they often shift their money from stocks and bonds into gold—ironically, this very shift itself can help trigger the crisis they fear.
Gold investment took a major turn about 20 years ago with the introduction of Exchange Traded Funds (ETFs). These financial instruments allow investors to gain exposure to gold without physically owning it.
Like company shares, gold ETFs are traded on stock exchanges. By tracking gold price movements, investors can buy or sell physical gold or related assets such as gold futures and shares of gold-mining companies. The fund managers handle the purchase, storage, and security of the physical gold.
The global spread of gold ETFs has significantly boosted gold investment. Especially during times of economic uncertainty, when confidence in stocks and bonds weakens, demand for gold rises—and with it, the price of gold.
US Financial crisis
Let me share a historical example. A few years before the US financial crisis of 2008–2009, gold prices began rising sharply. Between 2005 and 2008, global gold prices more than doubled, reaching $ 1,000 per ounce as investor demand surged. Anticipating a looming crisis, many shifted their investments from stocks and bonds into gold. And the crisis happened as stock and bond markets crashed.
This rise in gold prices was followed by spikes in oil and food prices. The price of crude oil, which was around $ 50 per barrel in early 2005, soared to $ 140 by mid-2008. Countries like the US, China, India, Japan, and several in the EU began accumulating oil reserves as a strategic investment.
Sri Lanka, too, entered a controversial oil price hedging deal in 2007. It led to losses rather than gains, when oil prices collapsed during the crisis.
Alongside oil, global food prices also climbed. Between 2005 and 2008, the Food and Agriculture Organization’s (FAO) food price index doubled. Rising oil prices played a key role here too, as oil is a major input in food production and transportation. Additionally, large swaths of agricultural land were converted to biofuel production, as oil became more valuable than food in the eyes of many investors.
These intertwined price movements—gold, oil, and food—culminated in 2008 with the collapse of the US financial sector. The resulting liquidity crunch and credit freeze spread across advanced economies, turning a financial crisis into a full-blown global economic downturn.
Another crisis?
What triggered the recent spike in gold prices? Is the world edging toward another crisis? And is this surge driven by speculative investment, as funds shift from stocks and bonds into gold?
Two key forces are behind the current gold rally: renewed investment demand and increased central bank accumulation. Both are rooted in a new set of interconnected economic fundamentals.
Amid growing fears of a global slowdown and potential recession, investors have turned to gold as a hedge against financial market volatility. Persistent inflation across major economies has further eroded confidence in fiat currencies, intensifying the appeal of gold. As a result, investors are once again flocking to gold ETFs and physical holdings—driving prices higher despite elevated global interest rates.
An important underlying factor that explains the above issues is the new US policies under Trump administration. The return of Donald Trump to the US presidency in 2025 brought renewed trade frictions and increased uncertainty in global markets. It was against the policies of Trump administration that there is fear of global economic downturn which led investors to shift their funds towards gold ETFs.
New monetary order?
The weakening of the US dollar during this period made gold more affordable for foreign buyers, fuelling a surge in global demand. At the same time, de-dollarisation efforts by BRICS and ASEAN nations have further reduced reliance on the dollar, enhancing gold’s role as a preferred reserve asset.
Central banks—particularly in China, Russia, India, and Turkey—have aggressively expanded their gold holdings to diversify away from the dollar. This sustained demand has helped drive prices higher, with central banks remaining net buyers for over a decade.
In the past five years alone, China added 350 tonnes to its reserves, Turkey 220 tonnes, India 200 tonnes, and Russia 30 tonnes. Central banks in the world have collectively bought over 1,000 tonnes of gold annually over the past three years.
In addition to China, Russia, India, and Turkey, other central banks actively accumulating gold in 2025 include Poland, Singapore, Kazakhstan, Uzbekistan, and the Czech Republic. Many of these purchases are driven by geopolitical uncertainty, inflation concerns, and efforts to diversify away from the US dollar.
So, with a weakening dollar and signs of a global economic slowdown, is the world heading toward another crisis? The risks and uncertainties are real, and the outcome could go either way. But one trend is unmistakable: the global shift away from dollar dependence is underway—whether gradually or rapidly.
(The writer is Emeritus Professor at the University of Colombo and Executive Director of the Centre for Poverty Analysis (CEPA) and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).
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