A comprehensive explanation of the underlying logic behind the "big pump" in gold

Author: Nathan Ma, Co-Founder of DMZ Finance

When gold prices surpass $4,000 per ounce in 2025, many realize: this asset, considered “conservative,” is experiencing a stunning big pump.

2001-2025 Gold Price Trends and Annual Returns Review Historical data shows a clear upward trajectory for gold.

2019-2025 Accelerating Gold Price Rise Trend

Focusing on data from 2019 onward, it’s evident that from $1,500 in 2019 to $4,000 in 2025, the compound annual yield exceeds 18%, far surpassing most traditional assets.

This rally is not accidental but the inevitable result of the combined effect of four core factors.

1. 2019 - Systemic Reform: Basel III Redefines Gold Value

The turning point for gold’s destiny began with an international banking regulation document called “Basel III.”

This regulatory framework, introduced after the 2008 financial crisis, was fully implemented around 2019 in major global economies. Its core goal is clear: ensure banks hold sufficient high-quality capital to withstand risks. Under this new regulation, gold’s status underwent a fundamental change.

In the old regulatory framework, gold was classified as “Tier 3 Assets”—banks holding gold needed to allocate expensive capital costs. This thousand-year-old metal, in modern finance, had become a burden.

However, Basel III made a revolutionary decision: officially set the risk weight of physical gold to zero. This means that in banks’ risk assessments, gold now stands alongside cash and top sovereign debt.

This change directly reduces banks’ costs of holding gold, encouraging banks to include gold in their high-quality liquidity 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: $300 Billion Frozen Sparks De-dollarization Wave

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

Russia’s approximately $300 billion in foreign exchange reserves were frozen, exposing another form of “credit” collapse—sovereign bonds and deposits backed by national credit can disappear overnight in the face of political risks.

This event prompted global central banks to reassess the safety of reserve assets. According to IMF data, the share of USD in global foreign exchange reserves dropped from 72% in 2000 to 58% in 2025, hitting a nearly thirty-year low. Meanwhile, over 20% of central banks indicated in 2024 that they would continue increasing gold holdings over the next two years.

This trend is evident worldwide. India’s central bank increased its gold reserves by over 200 tons between 2023 and 2025, raising its gold reserve ratio to 8%; Poland’s central bank added about 130 tons during the same period, citing “geopolitical risks as a key factor in their decision to increase holdings”; the Monetary Authority of Singapore announced in 2024 a 15% increase in gold reserves to strengthen financial system resilience.

These actions by various central banks mark a profound restructuring of global reserve assets. When sovereign credit risks emerge, gold—without any counterparty promise—becomes an inevitable choice for central banks under the new geopolitical environment.

3. Three Years of Pandemic - Excess Money Supply: Continuous Dilution of the US Dollar’s Purchasing Power

The big pump in gold also reflects the dilution of fiat currency, especially the US dollar’s, purchasing power.

Theoretically, as a scarce physical asset, gold can serve as a hedge against inflation. When governments issue large amounts of currency, leading to decreased purchasing power, gold’s intrinsic scarcity allows it to be priced in more currency units.

During the three-year pandemic period, major global central banks implemented unprecedented monetary easing policies. The Federal Reserve’s balance sheet expanded sharply from about $4 trillion in early 2020 to nearly $9 trillion at its peak in 2022, an increase of over 125%. Meanwhile, US M2 money supply surged from $15 trillion to $21 trillion between 2020 and 2022, an increase of over 40%, the fastest pace since World War II.

Historically, gold’s performance as an inflation hedge has not always been consistent, but during certain periods, it played a significant role. Throughout the 1970s, plagued by “stagflation,” the US CPI averaged a 7.1% annual increase. During the same period, gold prices soared from about $35 per ounce in 1970 to a peak of around $670 in 1980, an increase of over 1,800%.

From 2021 to 2023, supply chain bottlenecks and large-scale fiscal stimulus after COVID-19 pushed global inflation higher. US CPI hit a 40-year high of 9.1% in June 2022. Despite the Federal Reserve’s aggressive rate hikes putting pressure on gold prices, the environment of high inflation still provided strong support for gold.

Data shows that since 2000, the US dollar’s real purchasing power has declined by about 40%. This long-term value dilution has compelled investors seeking preservation of wealth to look beyond dollar credit for alternatives.

4. China Rebalancing - Reserve Restructuring: Strategic Adjustment by Global Central Banks

China’s foreign exchange reserve management strategy is becoming a key variable influencing the gold market.

Compared to the end of 2019, China’s reserve structure shows a clear “debt reduction and gold increase” trend: holdings of US Treasuries decreased from $1.0699 trillion to $730.7 billion (as of July 2025), a net reduction of $339.2 billion, a decline of 31.7%; meanwhile, official gold reserves increased from 1,948 tons to 2,303.5 tons (as of September 2025), a net increase of 355 tons, up 18.2%. Behind this “decrease-increase” shift is China’s central bank’s strategic considerations.

China’s foreign exchange reserves are large, but behind this vast reserve is a structural asset allocation change—moderate reduction of US Treasuries and steady increase in gold.

As of September 2025, gold accounted for only 7.7% of China’s official international reserve assets, significantly below the global average of around 15%. This indicates that China’s central bank still has ample room to continue increasing gold holdings.

This trend is not unique to China. According to the World Gold Council, global central banks’ gold purchases have been at a record high since 2022, when they bought 1,136 tons. Market expectations suggest that in 2026, net central bank gold purchases will remain above 1,000 tons for the fifth consecutive year, a historic high. Since 2006, Russia has shifted from a net exporter to a net importer of gold, continuously increasing its reserves.

Behind the global central bank gold buying spree are strategic considerations: gold, as a widely accepted final means of payment worldwide, can enhance the credit of sovereign currencies and create favorable conditions for advancing currency internationalization.

5. Future Outlook: The Logic Supporting Gold’s Continued 10-Fold Appreciation Over the Next 10-15 Years

Based on current fundamentals, a tenfold increase in gold’s value over the next 10-15 years is not a fantasy. This judgment is based on the following core logic:

First, the global de-dollarization process by central banks has just begun. Currently, the US dollar accounts for nearly 60% of global foreign exchange reserves, while gold makes up only about 15%. If this ratio rebalances over the next decade, just the demand from central bank gold purchases could bring trillions of dollars into the gold market.

Second, the continued expansion of global money supply contrasts sharply with the limited growth of gold reserves. Over the past twenty years, the M2 money supply of major 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 higher gold prices in the long term.

Third, the normalization of geopolitical risks will keep boosting gold’s safe-haven attributes. During the transition period when US credit is impaired and emerging reserve currencies are still maturing, gold’s value as a neutral reserve asset will be further reassessed.

Conclusion: Seize the Historic Opportunity

The big pump in gold is not driven by a single factor but results from the combined effects of “systemic reform, geopolitical risks, excess issuance, and reserve restructuring.”

Looking ahead, many institutions, including Goldman Sachs, are optimistic about gold prices, with Goldman Sachs even raising its 2026 December gold price forecast to $4,900 per ounce.

“Gold is money; everything else is credit.” In today’s environment where the value of credit currencies is under scrutiny, gold offers a wealth safeguard tested over thousands of years. The allocation that allows one to sleep peacefully is the true confidence to survive cycles.