Yesterday, the price of gold dropped 10% in one day. Even with that decline, it is still up 12% this year and up 84% since the beginning of 2025. Today, I will write a bit about gold because I have built a small position for all of my clients since 2022, after the Russia-Ukraine conflict started.

Remember when the US and EU froze Russia’s foreign reserves? That move, which was intended to hit Russia hard, sent a chill through central banks everywhere, especially in the Global South. Until then, the US dollar had served as a reserve asset in many sovereign central banks, meaning that they needed to acquire US dollars before they could issue their own currencies. 

The Great Dollar Diversification

So, where could these central banks go? They needed something rock-solid: stable, liquid, and safe from geopolitics. Other major fiat currencies (like the Euro or Yen) didn’t solve the problem — they carried the same risk, and none matched the depth of the US dollar market.

The only real answer? Gold. 

This realization led to massive, sustained gold buying by central banks worldwide. These aren’t traders looking for a quick profit; they are sovereign states seeking safety. They are totally price-insensitive. As a result, the price of gold has tripled since the middle of 2022. 

Will the Rally Resume after the Big Drop Yesterday? 

Central banks’ continuous buying has caught everyone’s attention — retail investors, institutional funds, you name it. Yesterday’s big move also indicated that speculative money, including cryptocurrency investors, has entered the market. I don’t know if speculative money will leave the market or not, but I believe that central bank buying is unlikely to stop. 

Take China for example. In 2025, it recorded a $1.2T trade surplus. China doesn’t want to hold that many dollars in its central bank reserves, so what can it do? They buy physical gold and ship it back to China. The trade surplus is not likely to disappear anytime soon, so the gold buying isn’t likely to stop, either.

Next week, I will write about silver.

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