After ending the first half of September at a four-week high, gold has pulled back slightly, slipping below $4,300 an ounce. The energy crisis triggered by the US-Iran war is weighing on it: oil prices have risen sharply, to the benefit of the dollar, the currency in which crude is priced. The spectre of inflation is back, and the US Federal Reserve (Fed) is threatening to tighten monetary policy, which in practice penalises gold as a safe haven. That is the explanation most widely cited in the media. But is it enough, on its own, to explain how precious metals are behaving?
War in the Middle East: why isn’t gold shining?
Gold’s loss of lustre during the US-Iran conflict has disheartened investors, who have grown used to the story of a safe haven that glitters in wartime. The fighting around the Strait of Hormuz did in fact weigh on gold, which recovered each time a truce seemed possible.
These apparently anomalous moves seem to contradict the direct relationship between gold and inflation: a rise in the former usually goes hand in hand with a rise in the latter. But it would be too simplistic to turn a general tendency into a fixed rule. Many factors can move gold in the short term. Dollar strength, monetary policy, liquidity, real interest rates and supply and demand can all outweigh inflation, either supporting the precious metal or holding it back.
Interest rates: a one-off or a tightening cycle ahead?
The Fed recently raised interest rates by a quarter of a point, leaving global markets to wonder what kind of tightening this is. Is it an isolated move, or the start of a systematic series of hikes? What is certain is that markets were too optimistic in expecting a quick return to low rates. If the energy shock turns out to be structural, it would increase the risk of higher inflation and sharply reduce the Fed’s room to ease monetary policy.
In the short term, higher Treasury yields and a strong dollar can act as a brake on gold. Over the medium to long term, however, persistent inflation and an unstable geopolitical landscape, combined with increasingly unsustainable public debt, could support demand for safe-haven assets.
The US debt problem
The size of US debt makes it hard for the Fed to keep rates high for long. According to Bank of America, interest on US public debt is dangerously close to $1.4 trillion a year. If rates stay at current levels, it could exceed $1.7 trillion by the end of 2028. This is one reason why a prolonged tightening cycle looks unlikely.
De-dollarisation: an ongoing process
Emerging economies, especially members of the BRICS group*, keep trying to reduce the dollar’s dominance over the international monetary system. De-dollarisation should not be seen as a sudden break with the greenback, but as a gradual process of diversification. The BRICS countries want to use their own currencies more in trade and to reduce their dependence on the dollar, and with it their exposure to US sanctions. They also aim to increase the share of gold in their reserves.
After all, commodities such as oil, gold, gas and agricultural products are priced mainly in dollars. This is pushing more and more countries to reduce their dependence on a single financial system, especially after the financial sanctions of recent years. Gold benefits greatly from this search for financial sovereignty because it is a neutral reserve asset: it is not another country’s debt, it is not issued by a central bank and it does not depend directly on any single nation’s monetary policy. That is exactly why emerging economies want to reduce their exposure to the US currency and prefer to build up their gold reserves, with purchases that have stayed above average even after the 2022 record.
So is the dollar about to be replaced? The answer is no, at least not in the near future. The US economy still rests on a financial structure built around the greenback, with liquid financial markets and solid investor confidence. A more realistic scenario is a gradual decline in the dollar’s weight, with countries using their own currencies in bilateral trade. When it suits them, of course.
*Originally Brazil, Russia, India, China and South Africa. Since 2024 the group has expanded to include Egypt, Ethiopia, Iran and the United Arab Emirates, and Indonesia joined in 2025.
Central banks: China’s purchases and the “repatriation” of gold
China keeps adding to its reserves, with 650,000 ounces of gold bought in August alone. It is the largest monthly increase since 2023 and the 22nd consecutive month of purchases. Over the past five years, meanwhile, China’s holdings of US Treasuries have fallen by about 40%.
Poland is still the largest single buyer worldwide, with the stated goal of holding 30% of its total reserves in gold. China is in second place, followed by the Czech Republic (whose purchases have continued without pause for more than three years), Kazakhstan, Brazil, Turkey and India.
But central banks are not just buying: custody has recently become a concern too. Protecting a country’s gold does not depend only on the security of the vault where it is stored. The political stability of the jurisdiction that holds it matters just as much. This is why several countries want to bring their gold home, under national control. The most recent is the Netherlands, which in early September brought 86 tonnes of gold held in the United States back to Europe.
Not just gold: the investment case for silver
Silver’s dual nature should not be underestimated: it is a precious metal with monetary value, and at the same time a favourite of industry. The white metal remains central to the energy and technology transition, with industrial demand now accounting for about 60% of the global total.
Photovoltaics takes the largest share of industrial silver demand, about 29%: the industry values silver’s electrical and thermal conductivity, the highest of any metal.
Electronics, artificial intelligence and the automotive sector follow. Outside industry, jewellery (led by demand from India) and investment, at 15-18%, account for much of the remaining demand.
The silver market has been in a significant structural deficit for more than five years. And since most silver is a by-product of copper, lead and zinc mining, supply struggles to respond when prices rise.
Sources:
- Garret Baldwyn, Jesse Clombo, Doug Caeys
- World Gold Council
- Bank of America
- Kitco news
