The Unraveling of Dollar Dominance: Geopolitical Risks and the Gold Surge

The U.S. dollar, long the bedrock of global finance, is losing its grip. Gold, meanwhile, has surged to record highs, trading above $3,850 per ounce in late 2025. This divergence reflects a profound shift in the relationship between the two assets, driven by geopolitical risks and the accelerating de-anchoring of currencies from traditional anchors. The interplay of these forces is reshaping global reserve strategies, challenging historical correlations, and redefining the role of gold in an era of systemic uncertainty.

Geopolitical Risks: The Catalyst for De-Anchoring

Geopolitical tensions have become a dominant force in financial markets. The U.S. government shutdown in early 2025, for instance, sent shockwaves through investor sentiment, pushing gold prices to record levels as markets sought safe-haven assets, according to a JPMorgan Chase note. Similarly, conflicts in the Middle East and Eastern Europe have reinforced gold's appeal, with prices rising over 3% within a week during October 2023's Israeli-Palestinian escalations, per a World Gold Council analysis. These events underscore gold's role as a hedge against systemic risks, particularly when traditional safe assets-such as U.S. Treasuries-face credibility challenges.

Central banks, too, have recalibrated their strategies. Between 2022 and 2025, global central banks added over 1,500 tonnes of gold to reserves, with China, India, and Russia leading the charge, according to a Deriv analysis. This trend reflects a strategic shift away from dollar-denominated assets, accelerated by the 2022 freezing of Russian foreign reserves and growing skepticism about U.S. policy stability. As one analyst notes in a CME Group analysis, "Gold is no longer just a hedge against inflation-it is a shield against geopolitical volatility."

The De-Dollarization Imperative

The dollar's share of global reserves has fallen below 47%, while gold's share approaches 20%, according to an Investopedia analysis. This structural decline is not accidental but the result of deliberate policy choices. ASEAN's 2026-30 Strategic Plan, for example, aims to reduce dollar invoicing within the bloc by 15% through local-currency trade settlements (Investopedia). BRICS nations have further advanced cross-border payment systems bypassing the dollar, cementing gold's role as a neutral reserve asset. JPMorgan Chase estimates that emerging markets' gold holdings in foreign exchange reserves have doubled over the past decade, from 4% to 9% (JPMorgan Chase).

This de-dollarization is compounded by monetary policy. The anticipation of Federal Reserve rate cuts in 2025 has reduced real yields, making non-yielding assets like gold more attractive, writes a Forbes analysis. Yet the relationship between gold and the dollar is no longer purely inverse. In 2023 and 2024, both assets strengthened simultaneously as central banks purchased gold to hedge against dollar volatility, even as geopolitical tensions spiked (CME Group). This complexity reflects a broader de-anchoring: gold's price is now driven as much by real interest rates and systemic risks as by dollar strength.

The New Equilibrium: Gold as a Strategic Reserve

Central banks increasingly view gold as a non-sovereign asset immune to financial sanctions-a stark contrast to the dollar's vulnerabilities. The 2025 Central Bank Gold Reserves Survey by the World Gold Council reveals that 81% of surveyed banks expect further gold accumulation in 2024-25 (Investopedia). China's gold reserves, for instance, reached 71.58 million ounces by November 2023, while Middle Eastern nations like Saudi Arabia and the UAE have expanded holdings as part of economic diversification strategies (Deriv).

Regulatory changes have also bolstered gold's appeal. The 2025 implementation of Basel III classified gold as a 100% risk-free asset on balance sheets, enhancing its attractiveness to risk-averse institutions (Deriv). Meanwhile, the Gold Return Attribution Model (GRAM) quantifies gold's response to geopolitical risks: a 100-unit increase in the Geopolitical Risk Index correlates with a 2.5% positive return on gold, according to the World Gold Council analysis (World Gold Council).

Implications for Investors

For investors, the message is clear: the dollar's dominance is waning, and gold's role as a strategic reserve is expanding. While short-term dollar strength-such as the June 2025 retreat in gold prices amid a strong greenback-can create volatility, long-term fundamentals remain robust (World Gold Council). Central bank demand, de-dollarization trends, and geopolitical risks form a powerful trifecta supporting gold.

Investors should also consider the indirect effects of de-anchoring. As countries diversify reserves, gold ETF inflows have surged, with $38 billion entering global funds in the first half of 2025 alone (Deriv). This liquidity, coupled with rising retail demand in Asia for physical gold, signals a broad-based bull market.

Conclusion

The dollar-gold relationship is no longer a simple inverse correlation but a dynamic interplay of geopolitical risks, monetary policy, and systemic distrust in traditional anchors. As central banks and investors alike pivot toward gold, the metal's role as a hedge and reserve asset is being redefined. In this new era, gold is not merely a counter to dollar weakness-it is a cornerstone of a multipolar financial order.