The golden dilemma: Is gold reclaiming its throne in the financial system?

However, in 1971, US President Richard Nixon ended the gold standard, allowing central banks to print money without gold backing. Since then, fiat currencies have dominated global finance. As gold prices surge today, nearing historic highs, questions arise about what is driving this rally. Is it merely a reaction to short-term volatility, or are we witnessing a more profound shift in how investors perceive value and security?

What’s driving today’s gold surge?

To understand the current gold rally, we need to look beyond mere market speculation. The relentless rise in gold prices, nearing the historic USD 3,000 per ounce mark, is driven by a complex web of geopolitical tensions, economic uncertainty, and strategic manoeuvres by the world’s most powerful institutions.

In the wake of Donald Trump’s re-election to the US presidency, global trade tensions have resurfaced with a vengeance. New tariffs, and the threat of further tariffs, on imports from China, Canada, and Mexico have reignited fears of trade wars, driving investors toward safe-haven assets. In times of geopolitical uncertainty, gold has consistently been the preferred refuge. In 2024 alone, central banks purchased over 1,000 tonnes of gold for the third consecutive year, led by China, India, and Turkey. 

A changing landscape of reserve management

The surge in gold buying is not just a short-term hedge – it reflects a strategic rethinking of how nations manage their reserves. Central banks, particularly in emerging markets, are actively diversifying away from the US dollar. This trend is especially significant among countries facing geopolitical tensions or economic sanctions, where gold offers a safeguard against currency manipulation and international financial pressures.

China’s continued accumulation of gold, for example, is widely seen as part of a broader strategy to increase the yuan’s credibility on the global stage. Meanwhile, Russia’s gold purchases reflect a strategic move to insulate its economy from Western sanctions. These developments suggest a growing preference for gold as a strategic reserve asset.

The US contemplates revaluing its gold reserves

While emerging markets are strategically accumulating gold, the United States is considering a different, yet equally significant, move – revaluing its gold reserves. 

Currently, the US Treasury's gold holdings are valued at a statutory price of USD 42.22 per ounce, a figure established in 1973. This valuation is significantly lower than the current market price of gold, which is approaching USD 3,000 per ounce. If revalued to reflect current market prices, the Treasury's approximately 261.5 million ounces of gold would be worth over USD 750 billion, compared to the outdated valuation of around USD 11 billion.

The implications of such a move are profound. Revaluing the gold reserves could bolster the nation's balance sheet, potentially providing additional leverage in addressing fiscal challenges. It could theoretically reduce the national debt or provide funds for infrastructure and other national projects. However, a revaluation would require careful consideration of the potential economic consequences, including impacts on inflation and the value of the US dollar.

President Donald Trump's recent announcement of plans to inspect the gold reserves at Fort Knox has fuelled speculation about a possible revaluation, pushing gold prices to record highs. Scott Bessent, US Secretary of the Treasury Secretary, on the other hand, has stated that there are no current plans for a gold revaluation or visiting Fort Knox. But the mere discussion of such a move has significant market implications.

This prompts a critical question: is the United States contemplating the revaluation of its gold reserves as a strategic response to the growing economic power of gold-hoarding nations, potentially ushering in a new era where gold reasserts itself as a cornerstone of global financial stability?

The ultimate hedge or a relic of the past?

Gold’s appeal as a store of value is timeless, but its role in modern finance remains a topic of debate. While some see it as a relic of the past, others view it as the ultimate hedge against fiscal irresponsibility and geopolitical turmoil. The current boost in gold values is not just about price movements – it’s about a deeper narrative of trust, stability, and the future of money itself.

The financial system is evolving, and gold is once again at the forefront of this transformation. As we stand at the crossroads of economic history, one question looms large: Are we witnessing the dawn of a new “golden age”, or is this merely a short-term shiny moment for the world’s oldest currency?

Patrick Quensel joined MBaer Merchant Bank in 2021. As head of investments, he is responsible for the bank’s investment strategy and oversees both advisory and discretionary mandates. He runs a macro-based asset allocation strategy to navigate global markets and uses a systematic model to capitalise on tactical trends.