Gold Consolidates- Why is Gold’s Role in the World Financial System Rising?

Andrew Hecht

Fri, Jun 27, 2025, 10:59 AM 4 min read

In a May 22 Barchart article exploring if gold was heading for higher highs, I concluded:

The bottom line is that technical and fundamental factors point to even higher gold prices over the coming months and years, supported by significant global economic and geopolitical changes. Buying gold during a correction has been optimal for over a quarter of a century, and I expect that trend to continue over the coming years.  

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Nearby gold futures were at the $3,301 level on May 21 and were slightly lower in late June. Meanwhile, gold’s role as a reserve asset continues to increase as the precious metal’s value rises compared to all fiat currencies.

An April 30, 2025, World Gold Council Report stated that central banks purchased a net 244 metric tons of gold in Q1 2025. The over 7.8 million ounces of net buying is a continuation of the trend over the past years as the official sector continues to validate gold’s role in the global financial system.

Central banks, governments, and monetary authorities classify gold holdings as part of their foreign exchange reserves, thereby validating gold’s position as a hard currency or money.

While the official statistics continue to show increasing gold reserves among the world’s countries, they likely understate the buying. Russia and China are leading gold-producing countries.

The chart illustrates that China was the leading gold producer in 2024, with Russia and Australia tied for second place. Since central bank and government inventories are classified as state secrets in China and Russia, the actual increase in government gold holdings is likely much higher than the official statistics indicate.

The U.S. dollar remains the world’s reserve currency, meaning that central banks and governments worldwide hold dollar reserves for cross-border transactions and as a reserve. Until recently, the Euro held the position as the second global reserve currency. “A recent report by the European Central Bank reveals that gold has overtaken the Euro as the second-highest foreign exchange reserve asset for central banks.” The article goes on to explain that “It was only a matter of time before central bankers preferred gold to at least some of the paper currencies.”