What’s behind the rise of Gold?
Gold’s rally can feel mysterious because it doesn’t behave like a normal investment. It’s usually treated as a safety-hedge – but it’s been going up with the stock market. It usually doesn’t pay to hold gold in a rising market, since it doesn’t pay interest, it doesn’t generate profits, and it in fact costs investors to hold it safely.
So why has it been climbing so sharply?
The short version: gold has benefited from a mix of institutional tailwinds (including Basel III bank regulation), heavy central-bank purchasing, and a growing trust problem in traditional safe-haven assets like U.S. government bonds. The interesting part is how these pieces reinforce one another.
Bank Regulations
Gold is increasingly being treated as the primary risk-free collateral of the banking system. A lot of headlines (and plenty of social media takes) have claimed that Basel III “made gold a risk-free Tier 1 asset”, as if regulators suddenly changed gold’s status overnight. The reality is nuanced, and it matters.
- Under the Basel III capital framework, gold held in a bank’s own vault can receive a 0% risk weight and be treated as a Tier 1 asset. Crucially, this is not new. Industry bodies like the LBMA and the World Gold Council have pointed out that this treatment has existed across Basel accords for decades; it wasn’t invented in Basel III.
- What Basel III did change in a meaningful way is the rules around how banks fund assets. The Net Stable Funding Ratio (NSFR) pushes banks to rely less on fragile short-term funding. In practice, this made certain forms of “paper” gold (AKA “unallocated”) more expensive for banks to carry compared with “allocated” physical gold.
When regulation nudges big institutions toward allocated/physically backed structures (and away from heavily leveraged or lightly funded ones), it can tighten the effective supply of readily available metal in the markets.
Central banks are Stockpiling Gold - Hard
One structural driver that has quietly reshaped the market is central banks being major net buyers of gold in recent years. This is not only because of NSFR, or because of the perceived safety of gold; it’s also been driven by politics.
In February 2022, following the Russian attack of Ukraine, a coalition of G7 economies froze some $300 billion in Russian state and personal assets. Contrary to international personal property law, some of those assets have since been liquidated and reallocated to support the Ukrainian war effort. Unsurprisingly, gold (which cannot be easily sanctioned, nor its origin easily identified), has become the main currency of Russian oil purchases.
Similarly, the Chinese government has rallied against US trade tariffs by using its own economic leverage. Once the top foreign holder, China now owns the lowest proportion of US government debt in 17 years, as it sold US T-bills and purchased gold.
In other words: this isn’t just a trade; it’s an economic tool used to decrease reliance on, and capitulation to, the US – a key component of the global dominance of the US (and Trump administration).
Investor Demand
Private investors have also shown up in size. The World Gold Council reports that 2025 set 53 new all-time highs in the LBMA PM gold price, with a record annual average price and only a modest supply response (mining and recycling didn’t create enough to balance out market demand). On the investment-vehicle side, the World Gold Council notes record gold ETF inflows in 2025, with assets under management and holdings reaching record highs.
When both central banks and private investors lean the same way, values can move very quickly.
The “risk-free asset” is looking a little less… risk-free
There has been a notable shift in the trust of U.S. government bonds. We now stand at a record $38 trillion in US government debt. Realistically, it’s unlikely that the U.S. is about to default, however, investors have started demanding more compensation for holding long-dated Treasuries – particularly since interest rates on cash account (steadily increased to bring down Covid-era stimulus) pay the same return – without the inflexibility. Compounding this issue, Fitch downgraded the U.S. rating from AAA to AA+ in August 2023, citing fiscal deterioration and repeated debt-ceiling standoffs.
Gold’s rise isn’t one story – it’s a stack of stories:
1. Regulatory changes reinforcing allocated/physical gold holdings
2. Central-bank accumulation that creates persistent baseline demand.
3. ETF and investor inflows that amplify moves.
4. A trust and pricing shift in U.S. Treasuries, where investors are increasingly focused on fiscal trajectory and bond supply dynamics.
None of this guarantees that gold will only go up. Gold can be volatile, and it can correct sharply. But the reason it’s been strong is not just “fear.” It’s that multiple big players – regulators, central banks, and investors – have been pushing in the same direction, at the same time.
Disclosure:
This article has not been written to give advice, and purely expresses our own opinions. We are not receiving any compensation for it, and we are not responsible or liable in our capacity as an independent financial adviser for any action taken by readers based on these opinions. For personalised advice based on these issues, please seek advice from a regulated, independent expert.