How central banks’ turning away from U.S. dollar is affecting gold prices

The global move away from the U.S. dollar is gathering pace as broader geopolitical uncertainty raise concerns over the stability and predictability of the dollar-centric financial system. In response, central banks, particularly in emerging markets, are boosting their gold reserves, pushing bullion prices to volatile highs.

Although the dollar remains the world’s dominant reserve currency, its share of global foreign-exchange reserves has been steadily declining for more than a decade. An International Monetary Fund survey shows the dollar’s share fell from about 71% in 1999 to 59% by 2021, reflecting a gradual but persistent diversification away from dollar-denominated assets.

Central banks turn decisively to gold

Emerging-market central banks across Asia, West Asia and parts of Eastern Europe have led the shift, steadily increasing gold allocations while trimming marginal exposure to U.S. Treasuries. According to the World Gold Council, central banks added 1,045 tonnes to global gold reserves in 2024.

Gold’s appeal lies in its neutrality: unlike fiat currencies, it is not tied to any issuing government, carries no credit risk, and cannot be frozen or sanctioned. These attributes have gained importance in an increasingly fragmented geopolitical landscape.

Gold crosses $5000 per ounce on heightened geo-political pressure

Record highs to dramatic plunge: Too much, too fast

The precious metal suffered a sharp reversal on Friday (January 30, 2026). Gold tumbled by over 11.7% globally and hit a low of $4,942/oz after touching a record high of $5,598. However, gold is still up more than 13% for the month.

“Key drivers to the gold’s rally include escalating U.S.–Iran tensions, expectations of U.S. Federal Reserve rate cuts following a pause, continued central-bank purchases, and rising exchange-traded fund (ETF) inflows driven by equity-market investors’ fear of missing out,” said Amit Gupta from Kedia Advisory.

BRICS lead de-dollarisation push

“Over the past three years, many countries have reduced dollar exposure and shifted reserves into gold,” Mr. Gupta noted. Several BRICS nations have intensified gold accumulation as part of broader de-dollarisation strategies, led by China and India.

China’s central bank added gold for a 14th consecutive month in December 2025, bringing annual purchases to 27 tonnes and total holdings to 2,306 tonnes — around 8.5% of its reserves. India has also increased exposure, with the Reserve Bank of India (RBI) raising gold holdings to 880.8 tonnes by September 2025 through purchases and repatriation. The value of India’s gold reserves has climbed to roughly $108 billion amid the price rally.

These moves underscore how large emerging economies are translating de-dollarisation strategies into sustained demand for gold.

Trump’s weaker-dollar stance jitters markets

On January 27, 2026, U.S. President Donald Trump brushed off the U.S. dollar’s decline, calling the weakness “great” and pointing to strong business performance. The Bloomberg Dollar Spot Index and the U.S. Dollar Index (DXY) fell sharply following Mr. Trump’s remarks, sliding to four-year lows. The dollar dropped 1.3% on January 27, the steepest single-day fall since April 2025.

DXY staged a significant comeback, on Friday (January 30, 2026) rallying to 96.50. This suggests that the market is pricing in the possibility that Kevin Warsh, Mr. Trump’s nominee for Fed chair will pursue a policy aimed at a more disciplined approach to interest rates.

Gold signals shifting trust in the dollar system

In a global reserve system holding more than $12 trillion in foreign-exchange assets, even marginal shifts are significant. A one-percentage-point move away from the dollar represents hundreds of billions of dollars flowing into alternative assets, with gold the primary beneficiary.

As a result, de-dollarisation is playing out less through abrupt currency realignments and more through steady central-bank accumulation and persistently elevated gold prices.

Mr. Gupta, however, cautioned that extreme momentum warrants caution. “With gold up nearly 30% on a monthly basis and silver up around 70%, a correction of 20–25% in gold and 30–35% in silver is possible if geopolitical tensions ease, tariffs soften, or ETF profit-taking accelerates,” he added.

Published – January 31, 2026 02:34 pm IST