PETALING JAYA: Geopolitical risks coupled with rising economic uncertainty and volatile US trade policy is pushing central banks to buy gold, traditionally seen as a buffer for unsettled times, with experts noting that this trend reflects a gradual shift away from the greenback while also enabling them to diversify their reserves portfolios.
UCSI University Malaysia associate professor of finance and Centre for Market Education research fellow Liew Chee Yoong told StarBiz that there were a number of inter-related factors driving this demand.
“Firstly, the global geopolitical landscape has become increasingly unstable. Tensions between major powers, particularly between the United States and China, and between the West and Russia have prompted many nations to seek greater financial autonomy.
“Gold, unlike US Treasury securities or other US dollar-denominated assets, is a neutral asset that is not subject to the political or legal control of any one nation.
“This makes it a particularly attractive store of value for central banks aiming to shield themselves from the potential fallout of sanctions, trade disputes or currency wars,” he noted.
Liew said China, Russia, India and members of the BRICS alliance have been systematically reducing their reliance on the US dollar while increasing their holdings in assets such as gold, which offers long-term stability and freedom from US jurisdiction.
Ballooning US national debt and recurring debt ceiling crises remain areas of concern too.
“Gold also continues to serve as a hedge against inflation.
“Although global inflation has eased somewhat since its Covid-19 pandemic-era peaks, core inflation remains sticky in many economies,” he said, adding that gold constituted a relatively small portion of Malaysia’s foreign reserves at 2.2% as of 2023, compared to the global average of 8%.
Juwai IQI global chief economist Shan Saeed
Shan Saeed, global chief economist at Juwai IQI, said Bank Negara held 38 tonnes as of the first quarter of 2025, according to the World Gold Council.
“Global central banks have been on a multi‑year buying spree – purchasing over a thousand tonnes annually since 2022. In May 2025 alone they added another 20 tonnes, and a record 95% of central bank reserve managers expect to increase gold reserves over the next year.”
According to the World Gold Council, central banks added a net 20 tonnes to global gold reserves in May 2025, an uptick from the previous month, though the overall pace has moderated slightly.
The National Bank of Kazakhstan led the buying (seven tonnes), followed by Turkiye and Poland each with six tonnes net purchases, meanwhile the Monetary Authority of Singapore reported sales of five tonnes over the same period.
Shan said several economic and financial drivers were at play. “In parallel, fears of de‑dollarisation and a desire for a more stable, non‑sovereign store of value are leading central banks to diversify.
“The World Gold Council survey found that diversification in crises, inflation hedging, and geopolitical hedging are top reasons for gold allocation,” he added.
He pointed to a UBS survey that revealed central bankers were worried about the financial risks tied to the US debt restructuring and the politicisation of the US Federal Reserve (Fed), with two‑thirds of central bankers worrying about policy neutrality, and 39% planning more domestic gold storage.
“All this is happening against a backdrop of resilient gold prices as the precious metal has climbed around 28% this year, with forecasts ranging from US$3,300 to US$4,000 per ounce by year-end.
“So, central banks are almost certain to continue scooping up gold to hedge against inflation, geopolitical and financial risks, and reduce reliance on the US dollar.
“The dollar index has lost 10.5% year-to-date and will experience tail-end risk. This aligns with structural shifts in the global reserve system we are witnessing now,” Shan noted.
Sunway University professor of economics Yeah Kim Leng
Sunway University professor of economics Yeah Kim Leng said the gold price surge has been evident since mid-2019 due to a combination of factors that include Fed rate cuts, trade war escalation, recession fears, geopolitical risks and record central bank buying.
“The rise in gold price was particularly strong in 2024 with year-on-year monthly increases averaging 23%.
“More spectacularly, the monthly increases accelerated by 39% in the first six months of 2025 due to similar factors, but exacerbated by Trump’s global tariff war and dollar weakness amid rising concerns over high US debts and fiscal woes.”
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said US economic policies would have negative implications on the country’s economy in the long run, with the tariffs raising the cost of doing business that would translate into a higher cost of living.
He said the One Big Beautiful Bill Act would result in the widening of the income gap as the tax cut measures benefits the high-income individual at the expense of lower social spending such as Medicaid as well as reduction in the clean energy subsidies.
“All this can have a significant impact on the US growth trajectory. Moody’s Ratings has already downgraded their sovereign rating on the US government from Aaa to Aa1 on May 16.
“They have projected that fiscal deficits will widen from 6.4% of gross domestic product (GDP) in 2024 to nearly 9% of GDP in 2035.
‘By extension, the government debt-to-GDP will rise from 98% of GDP in 2024 to 134% of GDP in 2035.
“On that note, the US dollar as a safe haven status is being revisited by the trading community which then makes a compelling case for gold as the substitute for the safe haven assets,” Mohd Afzanizam noted.
“On that note, shifting into gold and perhaps other precious metals such as silver, platinum and palladium could be the way to go.
“Essentially, we could see that fiat money would evolve into where the money will be backed by the precious metal and valuable commodities,” Mohd Afzanizam said, adding that he expects gold to hover at US$3,500 per ounce for this year.
Meanwhile, James Steel, the chief precious metals analyst at HSBC Global Investment Research, said central banks have racked up in excess of 1,000 tonnes of gold each year for the past three years, and the desire to diversify from the US dollar and cope with geopolitical risks looks likely to continue to fuel sector demand at a high rate going forward.
“Many private and individual investors have rediscovered gold, but the most recent buying is heavily institutional, and for large bars or on the over-the-counter and futures markets. After three years of liquidation, the exchange traded fund appear to be on a path of rapid accumulation,” he said.
