Are we entering the era of gold dominance? These 3 factors hold the cue

Mint

2 days ago

The world has always held a special place for gold. It is part of our family customs, weddings, and festivals in India. However, in 2025, gold became more than just jewellery or ceremonial items; it quietly but firmly returned as a significant worldwide asset. And given recent developments, we may be about to enter a new era in which gold will play a far larger role than it has in decades.
Once more, central banks are purchasing.
Following World War II, central banks all over the world were major buyers of gold for many years. They had almost 38,000 tonnes of it by the early 1970s. However, the Bretton Woods system came to an end in 1971 when the US dollar was formally delinked from gold. Global gold reserves then declined as nations like the UK and Canada started selling the metal.
Following the 2008 financial crisis, that trend reversed. Since then, central banks have started purchasing again, and as of right now, they own between 36,000 and 37,000 tonnes, nearly reaching their previous peak. In actuality, central banks now directly purchase almost one-third of the annual gold production.
Central banks see the benefit of holding more gold as they get ready for long-term uncertainty. However, there is still much work to be done.
Despite all of this purchasing, gold still only accounts for 17% of global central bank reserves, which is significantly less than the 45 - 55% levels that were observed between the 1950s and 1970s. They would have to almost double their holdings to return to that range.
That disparity implies that there is still a great deal of space for additional purchases. This is significant because central bank demand is typically stable, long-term, and less influenced by transient market fluctuations.
Meanwhile, a more significant global change is taking place. Trade tensions have risen once more as a result of recent tariff announcements made by U.S. President Donald Trump, such as a 25% tariff on all imports from India. Similar or higher tariffs apply to many other nations. This has, of course, alarmed international markets.
Investors seek out safer options whenever there is uncertainty, whether it be from inflation, trade wars, or politics. That has always been the role. And it's the same this time.
Gold prices surged to about $3,300/oz in July 2025, almost reaching their 1980s inflation-adjusted peak. Even though gold prices in India have risen to over ₹ 1 lakh per 10 grams, many buyers continue to enter the market.
Indeed, gold has a long history in India. But these days, it's also regarded as a viable investment choice, particularly in light of the erratic stock market, declining interest rates, and slowly rising inflation.
Demand hasn't decreased despite high prices. Newer products like Sovereign Gold Bonds and Gold ETFs are also gaining traction, and investors are still purchasing. For instance, AUM has surpassed ₹ 65,000 crore, and inflows into Gold ETFs alone have totalled ₹ 19,000 crore this year.
It's interesting to note that gold took over 40 years to return to its 1980 real (inflation-adjusted) value. Gold reached $800 an ounce that year, or about $3,300 in today's currency. Therefore, gold has simply caught up with inflation rather than "booming" as much.
However, gold is now being considered as a long-term solution rather than a reaction as central banks increase their purchases, trade relationships become more uncertain, inflation remains sticky, and interest rates peak. Gold is once again acting more like a global currency than a commodity.
It is anticipated that central banks will continue to purchase more, not less.
Investor behaviour is changing in India, both financially and emotionally.
Although volatility can result in brief price declines, many people view it as a chance to buy.
Gold is gradually regaining attention as a crucial component of investment strategy, not just as a haven, even though we may not be in a full-fledged "gold rush." For Indian investors, this entails looking beyond tradition and price alone.
The key is to view gold as a component of the larger scheme of things. And if present patterns continue, we might be seeing the start of a new era, one in which gold regains its position as the most valuable asset in the world, rather than a brief upswing.
(The author is Cofounder & Executive Director, Prime Wealth Finserv Pvt. Ltd.)
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.