Who really sets gold prices? Central banks hold the power—and it’s unpredictable

Yet another war is raging in West Asia, but gold—supposedly, the ultimate refuge in troubled times— has shed roughly 27% of its value since its January peak of $5,595 an ounce. At its mid-March low of $4,090, it had given back in four weeks what it had spent the better part of two years building.

If gold is the asset that holds its ground when the world falls apart, why is it doing the opposite right now? The answer matters not merely to satisfy one’s curiosity, but because it reveals something important about who is actually moving this market, and why ordinary investors should be careful about the assumptions they bring to it.

Gold’s extraordinary run over the past few years was not driven by retail sentiment or the usual geopolitical anxieties. It was driven by central banks. When the West froze the Russian Central Bank reserves after the outbreak of the Ukraine war, the message was clear to every finance ministry in the world: dollar assets held in the Western systems carry political risk. Gold cannot be frozen by a hostile government or switched off by an international banking consortium. The response was a wave of sovereign buying— China, India, Turkey, and many others steadily accumulated gold reserves—that pushed the prices to historic highs.


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I wrote about this in October last year, making a concession I had not previously been willing to make. My argument had long been Warren Buffett’s: gold produces nothing, earns nothing, and merely sits there. Still, I acknowledged that the central bank behaviour had changed the calculus enough to justify a 5-10% allocation, not as an investment, but as insurance. “When you buy term insurance,” I wrote, “you’re not investing— you’re insuring. You hope never to use it.” I called myself a gold sceptic, just a slightly less dogmatic one.

That insurance analogy now deserves a careful look. The war in Iran, for all its damage, is not replicating the specific dynamic that drove gold higher after the war in Ukraine. It is not triggering a global scramble to move sovereign reserves out of dollar assets. Central banks appear, on a net basis, to be pausing, rather than accelerating their accumulation. Global central bank gold purchases slowed to just 5 tonnes in January 2026, down from a monthly average of 27 tonnes in 2025. When the engine driving gold stalls, the price reflects it, regardless of whatever else is happening in the world.

Passengers on a wild ride

This is the deeper problem with gold for the ordinary saver. Its price is now largely determined by decisions made in finance ministries and central banks. These institutions weigh reserve policy, geopolitical hedging, and dollar exposure. Their calculations have nothing to do with your financial goals or timelines. You cannot read those decisions in advance, model them, or time your moves around them. You’re a passenger with no idea where the driver is heading or going to turn.

Contrast this with equity. A business generates earnings that grow with the economy. You do not need to anticipate what China’s central bank will do with its reserves next year. You simply need to believe—decades of evidence support this belief—that the economy will be larger 10 years from now, and patient ownership of good businesses will reflect that. Yes, the Nifty 50 also fell 11% in March, dragged down by war-driven oil shock. Equity is not immune to crisis, but equities fell because corporate earnings are facing a temporary squeeze due to the higher energy costs. Gold fell because the institutional buyers who had been propping up the price stopped buying. One of these you can analyse and wait out. The other, you cannot.

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What the past few weeks have shown, rather publicly, is that gold does not reliably do what its admirers claim it does in a crisis. This is a significant limitation for an asset that produces nothing, earns nothing, and requires you to be right about which institutional forces happen to be active at any given moment.

My position from last October stands. A small allocation as insurance against the monetary system stress is not irrational, but treat it strictly as insurance, not as a trade on geopolitical drama. Understand what the past two months have made clear: the price of your insurance is set by central banks and finance ministries, whose decisions you will never see coming. You are a passenger. Act like one. Keep the allocation small and build your wealth in assets that work for you without requiring you to guess foreign governments’ intentions.

The Author is CEO, Value Research