Gold’s dazzling new peak of $5,000-plus demands clarity on the financial world’s insecurity

This surge can safely be pinned on the safe-haven effect of US President Donald Trump’s erratic policies, which have eroded confidence in both the dollar’s stability and its ability to retain its post-World War II crown as the anchor currency of global finance.

However, there is such a thing as too much of a good thing, and once the real world becomes less volatile, some investors who fled regular assets like stocks and bonds could return, which could see the price of gold descend from these heights. In other words, gold is not a buy-and-forget-it store of value, despite its dizzying rise over the past year.

Gold was once the bedrock of global finance. Under the Bretton Woods system adopted in 1944, countries agreed to run currencies that were convertible into the US dollar and the US agreed to convert dollars presented by foreign governments and central banks into gold at a rate of $35 per ounce.

This gave stability to exchange rates, but also gave the US a unique opportunity to run its mint to create money accepted around the world. An oversupply of dollars abroad, particularly in Europe, eventually forced the US to abandon its promise to convert dollars into gold. This was in the early 1970s.

After that, most currencies began to float on global demand and supply, while some sought to peg theirs to the dollar. On its part, the International Monetary Fund created Special Drawing Rights to let countries borrow funds from it for forex payments, offering a cushion to those struggling to pay.

Currency values reflect economic performance; they capture the demand for and supply of national currencies for trade and investment, internal price stability relative to other economies and also productivity changes.

Ultimately, thus, a currency’s exchange value is determined by macro management, rather than a hoard of forex reserves piled up to defend it in case of a sudden capital-flight crisis. The most trusted reserve currency has been the dollar.

In 2011 and 2023, after credit rating agencies downgraded US debt a notch, its currency actually strengthened as panicky capital fled to the safety of US government bonds.

However, Trump’s rejection of the world’s rules-based order of trade and security, coupled with his threat to the independence of America’s central bank, the Fed, has shaken the globe’s trust in the US dollar and Treasury bonds.

At the start of 2020, over 60% of global forex reserves were held in dollars. That share had fallen to 56% by the end of 2025’s third quarter. Granted, central banks have diversified their holdings and been buying bullion since the West’s Great Recession, but that trend stands amplified.

Last May, when Moody’s notched down its rating of US bonds, capital fled the dollar, unlike in the past. Should a future Fed prove unable to tighten money supply in the face of US fiscal overruns, worse might follow.

If the price of gold also turns volatile at some point, as seems probable, investors and central banks may have to look farther afield.

Perhaps they will raise their share of non-financial, non-bullion, non-commodity holdings, for which they’ll need to deploy sophisticated tools of risk management. AI would help, of course.