Trump’s Policies Accelerate De-Dollarisation and Trigger a Global Gold Rush

Why in News ?

Gold prices have surged past the $5,000 per ounce mark for the first time, even as the US dollar slid to a four-month low. The rally is being driven not only by households but by aggressive buying from central banks worldwide.

Major central banks have emerged as key buyers of gold, signalling a strategic shift in reserve management. While households traditionally buy gold as a hedge, it is the actions of central banks that underline a deeper structural change in the global financial system.

The underlying driver of this trend is Donald Trump’s policy approach. His trade wars, sanctions-heavy foreign policy, and use of the US dollar as a geopolitical weapon have prompted many countries to reduce reliance on dollar-denominated assets. As trust in the dollar’s neutrality weakens, gold—being politically neutral and free from sanctions risk—has regained prominence as a reserve asset.

Background: The Dollar’s Dominance and Emerging Alternatives

For decades, the US dollar has been the backbone of the global monetary system, serving as:

• The dominant reserve currency,
• The primary medium for international trade and commodity pricing,
• The central unit of account in global financial markets.

However, growing geopolitical fragmentation, rising protectionism, and the strategic use of financial sanctions have begun to challenge this dominance. In response, countries are increasingly seeking diversification in reserve assets, particularly through gold and non-dollar currencies.

RBI’s Gold Holdings Drive Forex Reserve Growth

India’s central bank, the Reserve Bank of India (RBI), reported a sharp rise in foreign exchange reserves, with nearly one-third of the increase coming from gains in the value of its gold holdings.

Although the RBI added only a small quantity of gold, the 70% rise in gold prices over the past year significantly boosted the value of its reserves, far outpacing gains from foreign currency assets.

Gold’s Rising Share in Reserves

What matters more than absolute purchases is gold’s share in total reserves:

• In India, gold now accounts for 17% of forex reserves, up from 12% a year ago.
• Similar shifts are visible across several emerging and advanced economies.

This reflects a strategic recalibration of reserve portfolios toward assets insulated from currency depreciation and geopolitical risk.

Global Central Banks Buy More Gold

• The RBI is not alone. According to the World Gold Council, central banks in Poland, Kazakhstan, and Brazil were among the world’s largest gold buyers in 2025.
• This indicates a coordinated global trend rather than isolated national decisions, pointing to a systemic shift in how sovereign reserves are managed.

Debasement of the US Dollar: What’s Driving the Shift ?

Experts attribute the move away from the dollar to a combination of:

• Trade protectionism,
• Expanding use of economic sanctions,
• The emergence of a more multipolar world order.

US President Trump has repeatedly asserted the need to preserve the dollar’s global dominance, even threatening BRICS countries with punitive tariffs if they pursue alternatives to the dollar. Ironically, this aggressive use of tariffs, sanctions, and economic coercion has:

• Accelerated doubts about the dollar’s neutrality and reliability,
• Undermined confidence in the greenback.

These dynamics have contributed to a sharp weakening of the US dollar—down about 9% in 2025, its steepest fall in nearly a decade.

Why It Matters

• De-dollarisation threatens to dilute US financial power, reducing Washington’s ability to shape global trade and financial systems.
• At the same time, policy uncertainty and geopolitical sabre-rattling have boosted demand for gold, reinforcing its role as:
  • A hedge against currency debasement,
  • A safeguard against geopolitical risk,
  • A politically neutral reserve asset.

Weaponising Capital Flows: De-Dollarisation Accelerates

De-dollarisation is most visible in commodities, with a growing share of global energy trade now priced in non-dollar contracts, weakening the dollar’s traditional dominance.

The trend is also evident in government bond holdings:

• The RBI has steadily reduced its US Treasury exposure, with holdings falling to $186.5 billion in November 2025 from $234 billion a year earlier.
• China’s US government bond holdings have dropped to a 16-year low.

Institutional Investors Start Exiting US Treasuries

Concerns are no longer limited to states:

• Denmark’s major pension funds have announced plans to exit US Treasuries, citing geopolitical uncertainty, including remarks by Donald Trump.
• Earlier this month, Deutsche Bank warned that US threats against Europe could prompt the continent to cut holdings of US debt, effectively weaponising capital flows.

The European Union holds about $10.4 trillion in US portfolio assets, accounting for nearly 29% of foreign ownership. Trump has warned of “big retaliation” if Europe sells US bonds, underscoring how financial flows are becoming tools of geopolitical leverage.

The Past: How De-Dollarisation Gained Momentum

• The move away from the US dollar gathered pace after the US government froze Russia’s foreign exchange reserves following its invasion of Ukraine in February 2022.
• This action heightened concerns among countries about the safety of holding dollar-denominated assets.

De-dollarisation has been gradual but persistent:

• IMF data show that the US dollar’s share in global foreign exchange reserves fell to a 30-year low of 58.5% in 2024, down from 71% in 1999.

This reflects steady diversification by central banks into gold and other currencies.

The Future: Dominance for Now, Uncertainty Ahead

Despite these shifts, the US dollar remains overwhelmingly dominant, accounting for 89% of global over-the-counter foreign exchange turnover.

However, if current US policies and rhetoric continue—especially under the Trump administration—the pace of diversification away from the dollar could accelerate, leading to more visible structural change in the global monetary system.