Daijiworld Media Network - New Delhi
New Delhi, Jul 7: The global gold market, now valued at approximately $23 trillion, is witnessing a surge in demand as central banks ramp up their purchases in a move to reduce dependence on the US dollar, according to the July 2025 edition of the DSP Mutual Fund’s Netra report. In comparison, global foreign exchange reserves stand at around $12.5 trillion. The report notes that even a modest 5 per cent shift of these reserves into gold could trigger a significant and sustained rally in gold prices.
India continues to hold a dominant position in the global gold landscape, accounting for 15 per cent of the total gold held worldwide. Of all the gold mined to date, 65 per cent is in the form of jewellery, indicating both the cultural and financial importance of the metal, particularly in countries like India.
Central banks have emerged as the primary drivers of the recent gold demand boom. Between 2000 and 2016, total central bank gold purchases amounted to $85 billion. In stark contrast, in 2024 alone, central banks acquired gold worth $84 billion. Since 2022, central banks have been consistently purchasing nearly 1,000 tonnes of gold annually, which represents over a quarter of the annual global mining supply. This shift highlights the growing preference for non-dollar reserve assets amid concerns about the volatility of US Treasury Bonds, which have historically been viewed as safe-haven investments.
India’s Reserve Bank currently holds 880 metric tonnes of gold, according to the latest figures. However, it has refrained from adding to its reserves in FY26, likely anticipating a correction in gold prices, which have risen by over 80 per cent in the past five years. The rally in gold prices has been driven largely by geopolitical uncertainty, trade tensions, and a lack of attractive alternatives to the US dollar as a global reserve currency.
The report points out that potential alternatives to the dollar are riddled with limitations. The Euro continues to show structural weaknesses due to fiscal imbalances within the Economic and Monetary Union. The Chinese yuan, though increasingly influential, remains heavily state-controlled and lacks the transparency and global trust required to function as a major reserve currency. Other currencies are simply too small to attract meaningful interest from central banks.
Additionally, the report highlights a positive domestic trend in India, noting that strong operating cash flows have resulted in elevated operating cash flow margins. This signals improved capital allocation discipline and corporate governance, strengthening India's economic fundamentals at a time when global financial systems remain under pressure.