Gold and Central Banks - Understanding the resurgence of a monetary asset.

The starting point for understanding today’s gold market is central bank balance sheets. Gold is first and foremost a monetary reserve asset, and its dynamics only make sense when viewed through that lens. As of today, global central banks collectively hold roughly 36,000–37,000 tonnes of gold, representing about 17–18% of all gold ever mined. This is close to historical highs in absolute terms, though still below the peak share reached under the Bretton Woods system. Ten years ago, around 2014–2015, central banks held closer to 31,000–32,000 tonnes. The change since then is not marginal: central banks have added 4,000–5,000 tonnes of gold over the past decade, with the pace accelerating sharply after 2018 and again after 2022. What matters even more than the aggregate number is who is buying and who is not.

Western central banks, including the Federal Reserve, ECB member states, the Bank of England, and the Bank of Japan, have been broadly inactive. Their gold holdings are largely unchanged and reflect legacy accumulation from the mid-20th century. By contrast, non-Western central banks, notably China, Russia (pre-sanctions), Turkey, India, and several Middle Eastern and Asian countries, have been persistent and, at times, aggressive buyers. This divergence is the structural fact that defines the current gold regime.

Gold occupies a unique position on a central bank balance sheet. It is no one else’s liability, immune to default, immune to sanctions when held domestically, and independent of any payment system. Unlike foreign exchange reserves, gold does not depend on another country’s fiscal or political stability. That feature was abstract for decades; it became concrete after repeated episodes of financial sanctions and reserve freezes. For Western central banks, this risk is negligible. They issue reserve currencies and control the infrastructure of the global financial system. For non-Western central banks, it is existential. This asymmetry explains almost everything that followed.

After the global financial crisis, trust in the neutrality of the international monetary system began to erode. Gold buying by emerging-market central banks picked up slowly at first, then accelerated. The decisive break came in 2022, when Russia’s foreign exchange reserves were frozen. From that moment on, gold ceased to be merely a diversification asset and became a sovereignty asset. Central bank gold purchases have reached record levels, often exceeding 1,000 tonnes per year. Buying has been concentrated almost entirely outside the West, and purchases have continued despite rising prices, which tells you these are not price-sensitive trades. Central banks buying gold today are not speculating; they are changing the structure of their reserves.

Mining matters only because central banks are buying physical gold, not paper claims. Annual global mine production is around 3,400–3,600 tonnes, while central banks alone have at times absorbed 25–30% of new supply, which is historically unusual. At the same time, economically mineable reserves are about 50,000–60,000 tonnes, known resources add another ~100,000+ tonnes, and humanity has already mined ~210,000 tonnes. The implication for central banks is not that gold is about to “run out,” but that supply is structurally inelastic. Mine output cannot respond quickly to higher demand or higher prices, which makes gold uniquely suitable as a reserve asset in a fragmented world: no country can flood the market, and no central bank can manufacture it.

Western central banks are not adding gold because they already hold enormous stocks acquired at very low historical cost, face no sanctions risk, rely on deep, liquid sovereign bond markets for reserve management, and are highly sensitive to signaling effects. Buying gold aggressively would raise awkward questions about confidence in their own currencies. Doing nothing is a deliberate choice, not an oversight.

Gold’s recent price behavior is not driven primarily by inflation, jewelry demand, or speculative mania. It is driven by central bank balance sheet decisions, especially outside the Western bloc. For a Western investor, this has two implications. Gold should be viewed as monetary insurance, not a growth asset, and the strategic bid from central banks puts a structural floor under demand even at high prices. That does not mean gold is “cheap,” but it does mean it plays a different role than equities or bonds. A modest allocation, typically 5–8% of a diversified portfolio, reflects gold’s function as protection against systemic risk rather than a bet on price appreciation.

Seen from the correct angle—central bank reserves—gold’s resurgence is not mysterious at all. It reflects a world in which trust in the neutrality of reserve currencies has fractured. Western central banks, secure at the center of the system, can afford to stand still. Non-Western central banks, operating at its margins, cannot. Gold is not replacing the dollar, nor is it returning to a formal gold standard. But it is quietly reclaiming its role as the only truly neutral reserve asset. Mining constraints matter only insofar as they reinforce that neutrality by ensuring that supply remains slow, predictable, and politically uncontrollable. That—not scarcity headlines—is the real story.