According to Sprott Inc.’s market strategist Paul Wong, the value of gold as a reserve asset is growing around the world as the globe slowly shifts from a unipolar system to a multipolar system. He explains that the current price swings witnessed in the gold market may mask this new reality, but a close examination of market fundamentals attests to this fact.
The managing partner explains that recent surges in the value of the dollar reflect how important the greenback is at a time of economic and geopolitical turmoil in many regions. During such times, countries need cash to meet their needs, and gold reserves may be sold to provide that liquidity.
To illustrate this point, Wong points to the sharp corrections that happened in the gold market during the peak of the war in Iran. Disruptions to oil supplies sent crude prices soaring, and many countries sold some of their gold reserves in order to get their hands on cash to buy oil at the elevated prices.
Interestingly, Wong says that as the USD rallies, countries around the world acutely feel the pain of forking out more money to get their hands on the dollars they need to keep their economies functioning. This pain is compelling many central banks to look for alternatives, and they are diversifying their reserves to include more gold and additional foreign currencies.
The appeal of gold in such circumstances is that it can quickly be converted into cash when the need arises. Additionally, gold reserves that are stored domestically are safe from being sanctioned or seized by authorities in foreign capitals that are motivated by political considerations.
The case of the frozen Russian reserves after the invasion of Ukraine provided a stark reminder that counterparty risk and political risk are real, so central banks are protecting themselves by holding more gold, especially domestically.
Given that geopolitical tensions are rising and the world is increasingly fracturing away from the unipolar system that has existed for decades, Wong says gold reserves are going to continue rising at the same time that other multinational financial mechanisms like CIPS and mBridge spearheaded by China grow in scope. IMF data shows that gold reserves have grown from 12% of all reserves held by countries in 2000 to approximately 34% thus far in 2026.
Structurally, the demand for gold is growing and the recent swings can be attributed to fluctuations in the value of the USD. Those swings detract from the secular bull market that bullion is experiencing, but seasoned analysts at firms like Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM) are unlikely to be distracted from the big picture that is playing out amid the noise of U.S. monetary policy expectations, geopolitical tensions and other short-term market drivers.
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