Gold in a Multi-Polar World
Central bank accumulation, de-dollarisation trends, and geopolitical fragmentation are reshaping gold's role in institutional portfolios. We examine the structural case for gold as a core allocation in the current environment.
Gold's Evolving Role
Gold has served as a store of value for over five thousand years. Its physical properties — scarcity, durability, divisibility, and universal recognisability — make it uniquely suited to this role. But its function in modern investment portfolios has evolved considerably over the past two decades, from a simple inflation hedge to a more complex instrument that reflects geopolitical risk, currency debasement fears, and the shifting architecture of the global monetary system.
For much of the 2010s, gold was out of favour among institutional investors. The combination of low inflation, a strong dollar, and rising real interest rates — all of which are typically negative for gold — kept the metal range-bound. The opportunity cost of holding a non-yielding asset was high when bonds offered attractive real returns.
That calculus has changed dramatically. The post-2020 environment — characterised by fiscal expansion, monetary accommodation, geopolitical fragmentation, and a structural shift in central bank reserve management — has created a fundamentally more supportive backdrop for gold. The metal has risen from approximately $1,500 per ounce in early 2020 to over $3,000 per ounce by early 2025, a gain of more than 100% in five years.
The Central Bank Accumulation Story
The most significant structural change in the gold market over the past decade has been the shift in central bank behaviour. For most of the post-Bretton Woods era, Western central banks were net sellers of gold, reducing their reserves as the metal's role in the monetary system diminished. This trend reversed sharply after the 2008 financial crisis, and has accelerated dramatically since 2022.
Central banks purchased a record 1,037 tonnes of gold in 2023, the second consecutive year of record buying. The buyers are predominantly emerging market central banks — China, India, Turkey, Poland, and several Gulf states — that are seeking to diversify their reserves away from dollar-denominated assets. The motivation is partly financial (gold offers diversification and inflation protection) and partly geopolitical (gold cannot be frozen or seized by a foreign government, unlike dollar reserves held in the US financial system).
The freezing of Russia's foreign exchange reserves following the 2022 invasion of Ukraine was a watershed moment for central bank reserve management globally. It demonstrated, in the starkest possible terms, that dollar reserves are not truly sovereign assets — they can be weaponised by the US government in a geopolitical dispute. For any country that perceives itself as a potential target of US sanctions, the lesson was clear: hold more gold, hold fewer dollars.
De-Dollarisation and the Monetary System
De-dollarisation is a process, not an event. The dollar's share of global reserves has declined gradually over the past two decades, from 72% in 2000 to approximately 58% today. This decline has not been linear — it has accelerated in periods of dollar strength and decelerated in periods of dollar weakness. But the trend is clear, and it is structural rather than cyclical.
The question of what replaces the dollar is unresolved. The euro, the renminbi, and Special Drawing Rights have all been proposed as alternatives, but none has the combination of liquidity, institutional depth, and geopolitical neutrality required to serve as a global reserve currency. Gold, by contrast, is genuinely neutral — it has no issuer, no counterparty risk, and no political allegiance.
This neutrality is increasingly valuable in a world of geopolitical fragmentation. As the global economy divides into competing blocs — broadly, a US-led Western bloc and a China-Russia-led Eastern bloc — the demand for genuinely neutral assets increases. Gold is the only asset that satisfies this criterion at scale, which is why we expect central bank demand to remain structurally elevated for the foreseeable future.
Portfolio Implications
For institutional investors, the case for a meaningful gold allocation has strengthened considerably. The traditional argument — that gold is a hedge against inflation and dollar weakness — remains valid. But the structural demand from central banks, the geopolitical risk premium, and the de-dollarisation trend add additional layers of support that were not present a decade ago.
We recommend a gold allocation of 5–10% of a diversified portfolio, implemented through a combination of physical gold (or physically-backed ETFs) and high-quality gold mining equities. The mining equities offer leverage to the gold price — their earnings grow faster than the gold price when the metal rises, because their cost base is largely fixed — but they also introduce operational and jurisdictional risks that require careful selection.
The key risk to our constructive view on gold is a sharp rise in real interest rates, which would increase the opportunity cost of holding a non-yielding asset. This is not our base case — we expect real rates to remain relatively low as the Fed eases and inflation moderates — but it is a scenario that investors should monitor. A portfolio that includes gold alongside duration assets provides a natural hedge: if real rates rise sharply, the duration assets suffer but the gold position provides partial offset; if real rates fall, both assets benefit.
This article is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. For qualified investors only.
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