The Case Against Gold : Why It May Be Overstated
Gold has delivered exceptional returns over the past five years, rising more than 160% amid heightened geopolitical tensions, concerns over currency stability, inflation risks and elevated government debt levels in many countries. During periods of major geopolitical stress, the metal has historically provided positive average and median returns while often outperforming other major asset classes.
With such strong momentum, it is natural to ask what could derail the rally. Two frequently cited risks stand out: a slowdown or reversal in central bank buying, and a potential pullback from retail investors. Here is why these concerns, while valid in theory, may not pose an immediate threat to gold’s longer-term appeal.
Central banks stop buying (or start selling)
Central bank purchases have been one of the strongest supports for gold demand in recent years. Net official-sector buying roughly doubled after 2022, as many institutions sought to diversify reserves away from the US dollar following the freezing of Russian assets.
In 2025, central banks purchased approximately 863 tonnes of gold, still a historically elevated level, though below the peaks of the prior three years. Emerging market central banks, in particular, have increased their allocations. Gold now accounts for roughly 13–19% of reserves in many emerging economies, compared with higher shares (around 46–47%) in developed markets.
China stands out as a key buyer. By late 2025, its official gold holdings reached about 2,306 tonnes, representing roughly 8.5–10% of its total foreign exchange reserves. Countries such as Poland, India, and Brazil have also contributed meaningfully to the structural demand.
For major developed-market central banks (G10), there are currently no indications of planned large-scale sales. Any significant selling by institutions like the Federal Reserve would require substantial legislative changes and a break from long-standing precedent. A 2025 survey of central banks found that 95% expected global gold holdings to rise or stay stable, with none anticipating a decline.
Historical episodes of coordinated selling, such as the UK’s auctions between 1999 and 2002 or Switzerland’s decision to delink its currency from gold , did pressure prices at the time. However, those events occurred in a very different environment, when central banks were net sellers. The Washington Agreement on Gold, which later limited disruptive sales, has since lapsed, but the prevailing trend has clearly shifted toward accumulation rather than liquidation. A sudden reversal appears unlikely in the near term given ongoing diversification efforts and geopolitical uncertainties.
Retail investors lose interest
Retail participation has also supported gold’s recent strength, with many new buyers viewing it as a hedge against geopolitical and macroeconomic risks. Sharp short-term price swings , such as the volatility seen at the end of January 2026, are sometimes attributed to this group entering and exiting quickly.
However, retail-driven flows remain modest in the broader context. Global gold ETF holdings (a useful proxy for retail and institutional investment demand) stood at around 4,000–4,025 tonnes by the end of 2025, equivalent to roughly 8–10% of total central bank holdings. This is below the peak levels recorded in 2020 and far from dominant enough to dictate long-term price direction.
Beyond short-term hedging, gold continues to serve as a portfolio diversifier. It has historically shown relatively low correlation with equities and bonds, offered protection during periods of high inflation or equity drawdowns and helped reduce overall portfolio volatility.
In summary:
The arguments against gold, potential exhaustion of central bank demand or fickle retail flows, highlight real risks that could create periods of consolidation or volatility. Yet structural drivers, including ongoing reserve diversification by emerging markets, persistent geopolitical fragmentation and gold’s traditional role as a store of value, suggest these risks may not derail the metal’s longer-term trajectory anytime soon.
As with any asset, gold’s performance will depend on the evolution of inflation expectations, real interest rates, and global risk sentiment. For investors seeking diversification rather than short-term speculation, the metal’s case remains grounded in its unique characteristics rather than purely momentum-driven enthusiasm.
Important notes:
This article is for informational purposes only and does not constitute investment advice. The value of investments, including gold and gold-related assets, can fall as well as rise, and you may get back less than you originally invested. Past performance is not a reliable guide to future performance.