Gold has long occupied a special place in economic thinking. Unlike equities or real estate, inflation in gold prices has usually been treated with relative calm, anchored in the belief that gold reflects an intrinsic and enduring store of value. But the scale and speed of the recent surge have unsettled that confidence. In 2025 alone, gold prices in dollar terms rose by around 60 per cent, and have more than doubled over the last two years. Similar trends in euro-denominated prices suggest that this is not merely a dollar story, but a broader phenomenon with systemic implications.
Why the Recent Surge Is Unusual
Part of the rise can be explained by the weakening of the US dollar. However, gold prices have surged even in currencies like the euro, where depreciation has been far less pronounced. This has prompted warnings from the “”, which has flagged intensified speculation across asset markets. Its concern is not just about prices rising, but about the risk of sharp reversals that could spill over into the broader financial system.
From Bretton Woods to Market Pricing
Gold price inflation was structurally impossible under the “”, which fixed the dollar to gold at $35 per troy ounce and other currencies to the dollar. This changed in 1971, when the US, under “”, severed the dollar–gold link. Once gold ceased to anchor the global monetary system, its price became market-determined. Given limited supply and its appeal as a store of value, price volatility became a permanent feature.
Why Gold Did Not Explode Earlier
Despite supply constraints, gold prices did not spiral uncontrollably for decades. Central banks, which hold about 17 per cent of global gold stocks, tend to adjust reserves gradually. The continued dominance of the dollar as the world’s reserve currency also reduced the urgency of holding gold. For private investors, high storage and security costs further tempered demand, preventing runaway price increases even during periods of uncertainty.
Safe Haven Demand in Times of Crisis
That restraint has not always held. Gold demand has surged during periods of global stress—such as the oil shocks of the 1970s and the global financial crisis of 2008—pushing prices to record highs. More recently, emerging market central banks, including those of China and India, have steadily increased gold holdings as part of reserve diversification. Between 2007 and 2024, gold reserves of emerging and developing economies more than doubled. Yet this gradual trend alone does not explain the sharp spike seen since 2023.
Financialisation of Gold: ETFs and Beyond
The more immediate driver lies in the deepening integration of gold with modern financial markets. Gold-backed exchange traded funds (ETFs) have lowered entry barriers for retail investors, allowing exposure to gold without physical storage. Between Q3 2024 and Q3 2025, gold held by ETFs rose by about 20 per cent. This incremental but rapid rise in demand has added upward pressure on prices.
Stablecoins and a New Source of Demand
An even newer development is the use of gold as backing for digital assets. Stablecoin issuers have begun accumulating physical gold to support their tokens. According to market estimates, “” held around 116 tonnes of gold by September 2025, making it one of the largest non-central-bank holders globally. Its purchases accounted for a meaningful share of quarterly global gold demand, further tightening the market.
When Safe Haven Turns Speculative
These shifts have changed the nature of gold demand. As prices rise due to uncertainty or portfolio rebalancing by central banks, retail investors—now able to enter easily through financial instruments—often rush in expecting further gains. This feedback loop makes price movements more speculative than in the past. What was once a relatively stable hedge increasingly resembles a momentum-driven asset.
Why Policymakers Are Concerned
The BIS warning reflects this new reality. Gold price inflation today is less about fundamentals alone and more about financial amplification. That raises the risk of sharp corrections, investor losses, and broader financial instability. Gold remains a store of value, but its growing financialisation means it no longer sits outside the cycles of speculation and reversal.
What to Note for Prelims?
- End of the Bretton Woods system and its impact on gold prices.
- Role of central banks in global gold demand.
- Gold-backed ETFs and their effect on asset markets.
- BIS as a global financial stability institution.
What to Note for Mains?
- Analyse how financial innovation has altered gold’s role as a safe-haven asset.
- Discuss the implications of rising asset price inflation for financial stability.
- Evaluate the BIS warning on speculation in the context of gold markets.
- Examine the role of central bank reserve diversification in shaping commodity prices.
