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What’s Driving the Global Gold Rush?

A recent surge in the gold price is symptomatic of a changing world order and the onset of a new age of conflict and uncertainty. Governments and central banks have long viewed the precious metal as a potential source of monetary stability and economic security, and this time is no exception.

PRINCETON – Gold has returned to the international monetary system. Over 50 years ago, US President Richard Nixon “closed the gold window” (ended the dollar’s fixed-rate convertibility into gold), and the world moved on from its obsession with precious metals. A new era of fiat currency had begun. But now, fiat money is being challenged by fiscal worries and new technology (blockchains/distributed ledgers), and the price of gold has reached all-time highs above $2,400 per ounce.

Goldbugs, of course, argue that the metal remains an ideal investment for preserving value over the long term. But it is a mistake to believe that gold is uniquely stable. On the contrary, its price measures a fever curve of discord, with spikes indicating a rush for assurance in a world where other values are endangered. The price slumped in the 1990s, when the end of the Cold War – and the “end of history” – had instilled a new sense of peace and stability. At the turn of the millennium, the price was under $300 per ounce, and its rise since the 1970s was below the general rate of inflation. But the price surged after the 2008 financial crisis and after the outbreak of the COVID-19 pandemic; and it has done so again this year.

Much of the heightened demand for gold is driven by central banks. China, which had relatively small gold reserves of 395 tons in 2000, now has 2,260 tons. Notably, it increased its stock of gold substantially in 2009 and 2015, which we now know to be watershed years for a world that was becoming more skeptical about globalization. Russia and Turkey, too, started building up massive war chests after 2015, and the same trend is also evident more recently in the European Union, where the Czech Republic and Poland have both been augmenting their reserves.