Analyzing the underlying logic of "gold big pump"

Written by: Nathan Ma, Co-founder of DMZ Finance

When the price of gold breaks through 4000 dollars per ounce in 2025, many talents suddenly realize: this asset, considered “conservative”, is staging a spectacular surge.

Gold Price Trends and Annual Returns from 2001 to 2025 Looking back at historical data, the upward trajectory of gold is clearly visible.

The trend of gold prices accelerating upward from 2019 to 2025.

Focusing on the data starting from 2019, it is not difficult to find that from 1500 dollars in 2019 to 4000 dollars in 2025, the compound annual growth rate exceeds 18%, far surpassing most traditional asset classes.

The recent surge is not a coincidence, but an inevitable result of the combined action of four core factors.

1. 2019 - Institutional Reform: Basel III Redefines the Value of Gold

The turning point of the golden fate began with an international banking regulatory document called “Basel III”.

The regulatory framework introduced after the 2008 financial crisis was fully implemented around 2019 in major global economies. Its core objective is clear: to ensure that banks hold sufficient amounts of high-quality capital to withstand risks. It is under this new regulation that the status of gold has fundamentally changed.

In the old regulatory framework, gold was classified as a “Tier 3 asset” - banks had to incur expensive capital costs to hold gold. This millennia-old metal has surprisingly become a burden in the modern financial system.

However, the Basel III Accord made a revolutionary decision: to officially set the risk weight of physical gold to zero. This means that in the bank's risk assessment, gold now stands in the same queue as cash and top sovereign debt.

This change directly reduced the cost of banks holding gold, prompting banks to include gold in their high-quality liquid asset portfolios. Gold has returned to the center of the financial system, laying the institutional foundation for subsequent price increases.

2. 2022 - Russia-Ukraine War: The De-dollarization Wave Triggered by the Freezing of 300 Billion USD

If the Basel III agreement in 2019 paved the way for the rise in gold prices, then the Russia-Ukraine war in 2022 directly ignited the engine.

About $300 billion of Russia's foreign exchange reserves have been frozen, allowing the world to witness another form of “credit” collapse — even sovereign bonds and deposits backed by the credit of sovereign nations can vanish overnight in the face of political risk.

This event has prompted central banks around the world to re-evaluate the safety of their reserve assets. According to data from the International Monetary Fund, the dollar's share of global foreign exchange reserves has fallen from 72% in 2000 to 58% in 2025, marking a new low in nearly thirty years. Meanwhile, over 20% of central banks indicated in 2024 that they will continue to increase their gold holdings in the next two years.

This trend is evident globally. The Reserve Bank of India increased its gold holdings by over 200 tons between 2023 and 2025, raising its gold reserve ratio to 8%; the National Bank of Poland added approximately 130 tons during the same period and stated that “geopolitical risks are a key factor in the decision to increase holdings”; the Monetary Authority of Singapore also announced in 2024 that it would raise its gold reserves by 15% to enhance the resilience of the financial system.

The series of actions taken by central banks around the world marks a profound restructuring of reserve assets globally. As sovereign credit risks become apparent, gold, which requires no counterparty commitment, is becoming the inevitable choice for central banks in the new geopolitical environment.

3. 3 years of pandemic - Excessive money supply: Continuous dilution of the purchasing power of the US dollar

The surge in gold also reflects the dilution of purchasing power of fiat currencies, especially the US dollar.

Theoretically, as a scarce physical asset, gold can serve as a hedge against inflation to some extent. When the government issues a large amount of currency leading to a decrease in purchasing power, gold can be priced in more units of currency due to its intrinsic scarcity.

During the three years of the pandemic, major central banks around the world implemented unprecedented monetary easing policies. The Federal Reserve's balance sheet sharply expanded from about $4 trillion at the beginning of 2020 to nearly $9 trillion at its peak in 2022, an increase of over 125%. Meanwhile, the U.S. M2 money supply surged from $15 trillion to $21 trillion between 2020 and 2022, a rise of more than 40%, marking the fastest money growth since World War II.

Looking back at history, gold's performance in combating inflation has not always been effective, but it did play a significant role during certain periods. Throughout the 1970s, the United States was plagued by “stagflation,” with an average annual CPI increase of 7.1%. During the same period, the price of gold skyrocketed from about 35 dollars per ounce in 1970 to a peak of about 670 dollars per ounce in 1980, an increase of over 1800%.

Between 2021 and 2023, supply chain bottlenecks after the COVID-19 pandemic and large-scale fiscal stimulus have driven global inflation higher. The U.S. CPI reached a 40-year high of 9.1% in June 2022. Although the rapid interest rate hikes by the Federal Reserve during this period put pressure on gold prices, the high inflation environment still provided significant support for gold.

Data shows that since 2000, the real purchasing power of the dollar has declined by about 40%. This long-term value dilution has forced investors seeking to preserve value to look for alternatives outside of dollar-denominated assets.

4. China’s Position Adjustment - Reserve Restructuring: Strategic Adjustments by Global Central Banks

China's foreign exchange reserves management strategy is becoming an important variable affecting the gold market.

Compared to the end of 2019, China's foreign reserve structure has shown a significant trend of “reducing debt and increasing gold”: holdings of U.S. Treasury bonds decreased from $1.0699 trillion to $0.7307 trillion (as of July 2025), a net reduction of $339.2 billion, a decline of -31.7%; while official gold reserves increased from 1,948 tons to 2,303.5 tons (as of September 2025), a net increase of 355 tons, an increase of +18.2%. Behind this reduction and increase is the deep strategic consideration of the People's Bank of China.

China's foreign exchange reserves are substantial, but behind this large reserve is a structural change in asset allocation—moderately reducing holdings in U.S. Treasuries and steadily increasing holdings in gold.

As of the end of September 2025, the proportion of gold in China's official international reserve assets is only 7.7%, significantly lower than the global average level of around 15%. This indicates that there is still ample room for the Chinese central bank to continue increasing its gold holdings in the future.

This trend is not unique to China. According to data from the World Gold Council, the surge in gold purchases by central banks worldwide has continued to rise since hitting a record high of 1,136 tons in 2022. The market generally expects that the net gold purchases by central banks will remain above 1,000 tons for the fifth consecutive year in 2026, maintaining this historical high. Since 2006, Russia has transformed from a net exporter to a net importer of gold, with its gold reserves continuously increasing.

Behind the gold purchasing spree by central banks around the world is a profound strategic consideration: gold, as a widely accepted ultimate means of payment, can enhance the credibility of sovereign currencies and create favorable conditions for advancing the internationalization of currencies.

V. Future Outlook: The logical support for gold to continue to increase tenfold in value over the next 10-15 years.

Based on the current fundamental analysis, it is not a pipe dream for gold to achieve a tenfold appreciation in the next 10-15 years. This judgment is based on the following core logic:

First of all, the global central banks' “de-dollarization” process has just begun. Currently, the US dollar still accounts for nearly 60% of global foreign exchange reserves, while gold only accounts for about 15%. If this ratio is rebalanced in the next decade, the demand for gold purchases by central banks alone could bring trillions of dollars in inflows to the gold market.

Secondly, the continued expansion of the global money supply stands in stark contrast to the limited growth of gold reserves. Over the past twenty years, the M2 money supply of major global economies has increased nearly fivefold, while the annual growth rate of gold reserves has been less than 2%. This supply-demand imbalance will continue to support rising gold prices in the long term.

Third, the normalization of geopolitical risks will continue to highlight the safe-haven properties of gold. During the transitional period when the credibility of the dollar is damaged and emerging reserve currencies are not yet mature, the value of gold as a neutral reserve asset will be further reassessed.

Conclusion: Seize the historic opportunity

The surge in gold is not driven by a single factor, but is the result of the combined effects of four core factors: “institutional reform, geopolitical issues, excessive money supply, and reserve reconstruction.”

Looking to the future, several institutions, including Goldman Sachs, hold an optimistic outlook on gold prices. Goldman Sachs even raised its gold price forecast for December 2026 to $4,900 per ounce.

“Gold is money, everything else is just credit.” In today's world, where the value of fiat currency is being tested, gold provides a wealth guarantee that has stood the test of thousands of years. Only a configuration that allows people to sleep soundly is the true confidence that can transcend cycles.