Gold is tearing into newer territories without a heartbeat's pause.
On Monday, prices of the yellow metal touched Rs 1 lakh per 10 grams for the first time in history, defying both math and magic. Prices have surged over 26% or by Rs 20,800 per 10 grams in 2025, so far. They are gushing north of $3,500 per ounce at the time of writing. The price darts around so fast the caveat is necessary.
As with any other commodity, events control gold prices. They go up when global economic growth slows down, and remain inversely related to the movement of the dollar index during downturns. In a similar fashion, prices get hammered down when dollar strengthens and as investors flock to bonds in good times. Currently, as it bazookas all resistance, there's a growing sentiment that the gold prices are governed no longer by economic factors, but by the whims of Chinese buyers and investors.
According to the World Gold Council, global central banks are taking refuge in gold and may continue to add to the bullion boom in the coming years, thanks to mounting geopolitical risks, intensifying US-China trade tensions, and surging demand from institutional and retail investors alike.
While many central banks are pounding the purchase button, it's China's gold-buying spree that has snapped the world into attention. Its total gold reserves stood at 2,292 tonnes, or 6.5% of its total reserves as on March, 2025 and as gold prices surged owing to a weaker dollar, the value of China's gold holdings surged 20% to $230 trillion. As it is, China is the world's second-largest importer of non-monetary gold after Switzerland, and also the top producer of gold with an annual production of 375 tonnes, followed by Russia at 325 tonnes.
China has been at the front of the queue buying gold more than any other central bank in recent months and has even surpassed India as the world's largest gold buyer. Interestingly, this feat was achieved not because its central bank walked in with a blank cheque, but also because Chinese consumers got sucked into the yellow metal's magic maw. In fact, it's the latest fad in town, with China's Gen Z rushing to buy gold beans, which are nothing but easy-to-acquire gold nuggets that weigh as little as one gram and are stashed away as part of the rainy day funds.
Regardless of whether you are an ordinary customer or a global central bank, accumulation of gold reserves is purely to safeguard wealth during volatilities and withstand currency fluctuations. Building gold reserves is a broader strategy shared among all countries who freshly want to minimize dollar's role in international trade and financial transactions as dollar reliance has often led to vulnerabilities. The US has often used its currency's dominance to impose sanctions on countries like Russia and Iran and it's understandable why countries are accumulating pots of gold.
Still, it's a puzzle why China is buying gold much more than any other central bank?
Oddly, the answers have reached even Instagram users and here's the reasoning: China wants to reduce its reliance on the US dollar and promote the international use of the Chinese yuan. Currently, holding yuan is costly because its lack of convertibility and its international usefulness is rather limited.
But such intensified buying is causing another inevitable fallout -- weakening of the dollar, raising concerns over its global reserve currency status.
In an ordinary course, financial turmoil shoots up the dollar's value as investors take shelter in the safe haven US Treasury bonds. However, since Trump announced reciprocal tariffs, there has been a steady sellout of US treasuries, eroding the value of the dollar in the process. In all, the dollar fell over 9% against a basket of currencies in 2025 so far. Currencies rise and fall all the time, though the current decline seems unusual.
In contrast, gold is behaving like a bit of a hero and as its price keeps breaking record highs, the dollar is slowly being challenged as the world's favored child. It's global currency reserve status in the international monetary system is also under question. Curiously, the architects of the dollar's decline are none other than its own masters, who argue that the dollar is overvalued, making American goods dearer and worsening the US trade deficit.
The Trump administration argues that the dollar's international monetary haven status structurally overvalued its currency even leading to a loss of competitiveness. Steve Miran, the Chairman of Trump's Council of Economic Advisers, recently reasoned that being the world's reserve currency meant persistent currency distortions, leading to unsustainable trade deficits as foreign goods became cheaper relative to those produced domestically.
To be clear, Trump isn't ready to give up the reserve currency status, which Beijing is desperate to replace with the yuan. As he noted, losing the status is the equivalent of losing a war. All Trump and his team want is an erosion in the value of the dollar, to benefit the domestic economy and also enable the US to finance its huge government debt, which on last count stood at $36 trillion.
Others, however, argue that such a move will only shun capital inflows, raise borrowing costs, and lead to currency depreciation, causing monetary mayhem. They believe that dollar's strength isn't due to its reserve currency status but its own policies and structural deterioration in a country's trade balance occurs due to a gap between domestic savings and investments.
In any case, dollar's reserve currency status has been falling. For instance, if the dollar accounted for 65% of global foreign exchange reserves as on 2014, it fell to 58% in 2024. Likewise, the share of US Treasury market owned by foreigners too fell from 50% to about 30% during the same period.
Besides concerns of dollar's overvaluation, Trump is separately driving the dollar down with his attacks on the US Federal Reserve Chair Jerome Powell citing inaction on the rate front. As recently as Monday, Trump claimed that inflation was trending down, but there could be a slowing of the economy 'unless Mr Too Late, a major loser, lowers interest rates, NOW.' Following Trump's remarks, the Dow Jones index dropped by almost 1,000 points on Monday alone, losing 2.5%, and is now on the way for its worst April since 1932.
Opponents, however, insist that Trump's beef with Powell is clearly to make the Fed a scapegoat for a US recession, shattering his claims that tariff wars will boost the American economy.
This was reason enough for global financial markets to have a nervous breakdown as Trump's push for the removal of Powell is seen as an indication that the deepening financial crisis is going out of hand. The question is, if the bloom is truly off the US dollar and if it'll no longer lord over the global basket of currencies only in the short-term, or for good?
