The case against gold and why it’s wrong

So what stops gold’s rally?

Risk: No more central bank buying

The biggest driver of gold prices has been central banks. Net purchases of gold have doubled since Russia’s war on Ukraine began in 2022. Central banks have fueled demand for the precious metal in efforts to diversify reserves away from the U.S. dollar after the United States froze Russian assets. The top five largest holders of gold outside of the IMF are the United States, Germany, Italy, France and Russia. What if that structural demand from global central banks waned? Or worse, what if they wanted to outright sell the commodity?

It has happened before. From 1999 to 2002, the United Kingdom carried out a series of public auctions to sell over 50% of its gold holdings and diversify its reserves into foreign currencies. During the same time, Switzerland voted to delink the Swiss franc from gold. Gold prices fell 13% in the three months following the United Kingdom’s announcement—a move equivalent to a ~$650 drop in today’s terms. The selling only stopped after several central banks signed The Washington Agreement on Gold to coordinate and cap large, price-moving gold sales. The agreement lapsed in 2019, as central banks largely became buyers of gold, not sellers. In theory, that means sales are still possible. As is plateauing demand.

Rest assured, it’s unlikely to happen. At least, not anytime soon. Here’s why.

As of 2025, gold has made up ~19% of emerging market reserves, relative to ~47% of developed market reserves. Among the emerging markets piling into the precious metal, China stands out. Both an emerging market and a competitor to the United States, the country has actively been rotating its reserve assets into gold. Even though China is the seventh-largest custodian of gold holdings in the world, the metal only makes up 8.6% of its reserves according to the World Gold Council. If the trend continues, China has a lot more gold reserve purchases in the pipeline. And it’s not alone: Poland, India and Brazil have also been driving the structural demand.

For G-10 central banks, there has been no indication that gold sales are being considered. Even for the Federal Reserve, it would first require large legislative changes and a major break with over a century of precedent. Furthermore, in 2025, 95% of central banks expected global gold holdings to increase, with 5% saying unchanged, and none of the respondents expecting a decrease, according to a YouGov/World Gold Council poll.

Risk: Retail investors turn their backs

Don’t forget retail investors. They’ve also been flocking to gold. These new buyers are often building a position as a hedge against rising geopolitical risks and macro uncertainty. While this pattern has contributed to the increase in prices, there is another side to the story. New investors could drop the metal as quickly as they picked it up if risks die down or another hedge emerges. The volatility at the end of January paints a clear picture. Gold shot up 20% in a week before crashing by the same margin in two days. Some investors would point to the episode as an example of short-term investors driving prices.

To examine this argument, take a step back. Retail activity is high, but not outrageous compared to history. ETF holdings of gold (a good proxy for retail interest) stand at ~100 million ounces, the equivalent of only ~8% of global central bank holdings. It’s still below the record ~110 million ounces recorded in 2020, and while it could increase, retail activity isn’t in a position to set prices over the long term.