Gold prices surpass $4000 per ounce; What is driving the relentless rally?

2025 has been the year for precious metals, as gold and silver are soaring at record high levels. The gold prices have appreciated by over 53% in 2025 as they crossed a psychological threshold of $4,000 per ounce in the global markets. The rally has puzzled many as gold has rallied despite global markets performing steadily in the same period. Major global indices of the US, Japan, UK and EU, like the Nasdaq, Nikkei, FTSE 100 and Euro Stoxx, are trading at record levels.

Gold was fundamentally seen as a hedge against volatile and adverse market conditions and an asset of safety amid turbulent times. In the recent past, gold prices have soared contrary to the fundamental behaviour. Market experts attribute multiple reasons to this rally of gold. Starting poor health of the US fiscal structure, continued war between Ukraine to central bank buying of gold. However, the central bank’s gold buying holds weightage among all other factors as its bulk demand has led to more sharper rise in global gold prices.

Growing central bank gold buying

The global central banks have seen a consistent increase in gold purchases for the last five years. Since 2021, global central banks have bought more than 1000 tonnes of gold each year. The World Gold Council projects the central bank buying could cross 1000 tonnes in 2025, as well as maintaining the streak for the fifth consecutive year. The Indian central bank has slowed down the buying of gold as the depreciating Rupee raised concerns. However, the Reserve Bank of India has consistently added gold to its coffers over the past five years. Countries like China, India, and Russia have accumulated over 200 tonnes of gold since 2022, marking an evolutionary change in the global financial order.

Why are central banks buying more gold?

The central bank previously used to hold as a measure of hedge against uncertainty in addition to treasury bonds, which were the safety net for the central banks. However, due to the changing global financial system and evolving risks around the US economy has forced central banks have been forced to change their outlook towards gold. Risks of the US recession, ballooning debt levels, and tariffs have increased the risks of dollar-denominated assets. Thus forcing central banks to diversify their exposure to gold. According to media reports, the dollar’s share in the global currency reserves has declined to 58% from over 70% in 2000.

In the same period, gold’s share has increased above 18% in the reserve currency. In addition to economic diversification, countries are moving away from the dollar to reduce the impact of vulnerabilities of the dollar. As a result, the dollar index, which tracks a basket of currencies and is considered to be the preferred gauge for the strength of the US dollar, has fallen over 10% in 2025, its worst since 1973.

Is dollar's reserve currency status under threat?

Not immidietly, but if the US fiscal situation continues to detoriate, emerging and other developed nations could fast switch their foreign assets to gold from US treasuries. Veteran investor, Ray Dalio said, the current economic environment resembles that of 1970, when high debt, inflation and heavy government spending eroded the confidence in paper assets and fiat currencies. He said at Greewnwich Economic Forum event in Connecticut on Tuesday. While comparing today's situation to that in 1970s he stressed the importance of having exposure of gold in the overall portfolio.

As central banks move away from dollar-denominated assets like US treasuries for buying more gold, the prices are expected to remain in tandem with the demand. Changing the global order from being the US or Western domination to a more multipolar world order could pave the way for a diverse reserve system.