As of October 2025, gold climbed above $4,300 per ounce, marking the highest price in history. Behind the rally lies a deeper transformation: a global re-balancing of trust in money itself.

According to the World Gold Council (WGC), central banks purchased 1,051 tonnes of gold in 2023 and 1,089 tonnes in 2024, marking the first time in modern history that annual official–sector demand exceeded 1,000 tonnes for three consecutive years since 2022. In just the first quarter of 2025, global central banks added another 249 tonnes, maintaining the strongest buying trend in decades.

The turning point came in 2022, when the United States froze over $300 billion of Russia’s foreign reserves, showing that dollar assets could be “frozen at the click of a button.” That shock eroded global trust in the dollar’s neutrality and pushed emerging economies (especially China) to rethink their reserve structure.

Building a parallel financial system through a new gold corridor

China’s response has been methodical:

• Accelerate gold reserve accumulation, now exceeding 2,150 tonnes, as part of a deliberate strategy to strengthen monetary independence and reduce reliance on the U.S. dollar.
• Expand the Shanghai Gold Exchange (SGE), becoming the world’s largest physical gold  marketplace
• Create an international “Gold Corridor”, a network of BRICS-linked vaults and settlement systems that allows countries holding yuan to swap it for physical gold

This so-called “Gold Corridor” is the backbone of the new framework. It connects the Shanghai Gold Exchange, BRICS-aligned clearing hubs, and regional vaults from Moscow to Johannesburg. Through this corridor, central banks and sovereign funds can settle trade and loans in gold or yuan convertible to gold. 

The mechanism is simple: countries deposit gold at the Shanghai Gold Exchange, then receive loans in yuan to fund infrastructure. 

As the South China Morning Post explains, the initiative aims to “create an alternative global liquidity system based on gold, outside of U.S. dollar dominance.” In practice, the Corridor functions as a bridge between commodity-rich countries and the Chinese financial system, supporting bilateral trade without using the dollar.

In 2024, China launched new storage and refining facilities in Shanghai, Shenzhen, and Hainan, while BRICS partners, especially Russia and South Africa, began integrating their own exchanges. The system is already being tested for cross-border settlement of energy and infrastructure contracts, a milestone that could redefine trade finance.

Basel III: gold becomes “Tier 1” money

In 2025, the Basel III framework brought a significant regulatory transformation for the global banking system and for gold. Under these finalized reforms, allocated physical gold is treated as a Tier 1 asset, meaning it carries a zero risk weight for capital adequacy purposes, effectively placing it on par with cash and U.S. Treasuries in terms of balance-sheet recognition (Strategic Gold).

This change doesn’t yet mean that gold qualifies as a High-Quality Liquid Asset (HQLA), a category reserved for the most easily tradable and liquid instruments. The London Bullion Market Association (LBMA) clarified that gold has not been formally designated as HQLA under Basel III rules, even if  many market participants treat it as functionally similar due to its global liquidity and deep trading markets.

The U.S. response and the global split

Washington has taken note. Since beginning 2025, the United States, still holding around 8,100 tonnes of gold, has quietly begun repatriating reserves from the Bank of England and other overseas vaults, a move reminiscent of the Cold War era. The Federal Reserve is also studying mechanisms to increase transparency in sovereign gold holdings to reassure markets about U.S. custody integrity.

Meanwhile, Western economies are exploring their own counter-strategy, betting on digital financial infrastructure including tokenized assets, blockchain-based settlements, and central bank digital currencies (CBDCs). The world is thus evolving toward two parallel financial paradigms:

• China’s model, rooted in tangible, gold-backed assets;
• The Western model, anchored in technology, liquidity, and trust in digital transparency.

Rather than converging, these systems appear to be diverging, setting the stage for a metal versus code global balance.

Future prospects and target prices

Looking ahead, the outlook for gold remains strongly bullish, underpinned by persistent geopolitical risks, expectations of lower real interest rates, and ongoing strategic reserve accumulation by central banks. While volatility is likely driven by profit-taking, economic data surprises, and shifting monetary policy, the momentum favors higher prices through 2026.

Key analyst forecasts:

• Bank of America raised its price forecasts for precious metals, lifting its 2026 outlook for gold to $5,000 per ounce
• Goldman Sachs has also now revised its year-end 2026 target to about $4,900 per ounce, citing robust ETF inflows and central bank buying
• JP Morgan analysts maintain a bullish outlook on gold, forecasting prices could reach an average of $5,055 per ounce by end 2026
• HSBC raised its 2026 average gold price forecast to about $3,950 per ounce, and projects the metal could hit up to $5,000 per ounce by early 2026 under favorable conditions
• UBS issued an upside scenario target of $4,700 per ounce by Q1 2026, driven by lower real yields, inflation resilience and central-bank demand

Integration into a retail investor’s portfolio

In recent years, some of the world’s savviest investors and central banks have shifted gold from a tactical hedge to a strategic cornerstone of asset allocation. In July 2025, Ray Dalio has publicly recommended that a well-diversified portfolio should allocate 10 % to 15 % to gold, noting its unique ability to remain uncorrelated and resilient amid macro turbulence.  Meanwhile, global central banks are tipping their hand: according to the World Gold Council’s 2025 survey, a record 95 % believe that gold reserves will increase in the next twelve months, and gold now accounts for roughly 20 % of the total foreign exchange reserves in many advanced nations.  

This isn’t about following a trend. It’s about understanding that in a world of rising inflation, mounting debt, and geopolitical tension, gold stands out as one of the few assets that doesn’t rely on anyone else’s promise. For retail investors, this means that gold is no longer just “maybe worth a look”. It’s increasingly being chosen by the world’s largest and most sophisticated fiduciaries as a core building block of their portfolio strategies. 

Investment techniques for gold and available Investment Instruments

Retail investors can employ several techniques to capitalize on gold’s attributes as a hedge and diversifier. A primary approach is the “buy and hold” strategy, particularly for physical gold, which serves as a long-term store of wealth amid inflation and currency risks. For more active engagement, dollar-cost averaging, they should investing fixed amounts at regular intervals to mitigate volatility. 

Retail investors have access to diverse instruments for gold exposure:

• Physical Gold: Bars, coins, or bullion purchased from dealers
• Gold ETCs: Funds like iShares Physical Gold ETC,  Invesco Physical Gold A, Amundi Physical Gold ETC, which track gold prices via physical backing
• Gold Mining Stocks: Shares in companies such as Newmont or Barrick Mining Corporation
• Mutual Funds: Commodity-focused funds that invest in gold futures or a basket of mining equities (more expensive than ETCs and not so value enhancing)
• Futures and Options: Contracts for sophisticated investors seeking leverage and hedging opportunities

At DrillingDown, we believe that mastering any asset class starts with knowing its structure, costs, and the real value behind every instrument. There are many ways to invest in gold and each tells a different story about what kind of investor you are. 

From holding physical gold bars to trading futures, every instrument carries its own balance of security, liquidity, and upside potential. The table below breaks down the most common vehicles available today, helping investors identify which approach best aligns with their goals and risk appetite. Whether you’re seeking long-term wealth preservation or short-term tactical exposure, understanding the trade-offs is essential before stepping into the gold market.

For retail investors, gold ETCs offer the optimal combination of low costs, liquidity, and direct exposure to the metal itself. Unlike mining stocks, where investment is also tied to a company’s management, strategy, and operational risks. ETCs allow investors to participate directly in gold’s price movements, avoiding the complexities and uncertainties inherent in equities. Compared to other instruments, their fees are minimal, making them the most practical and efficient way to integrate gold into a diversified portfolio, providing both protection and potential growth in volatile markets.

Performance and Correlation Analysis

To complement the qualitative assessment of gold investment instruments, an empirical performance comparison was conducted using normalized daily compounded returns over a 10 year horizon (October 2015 – October 2025). The dataset (sourced from Yahoo Finance) includes physical gold, leading gold ETCs, major mining equities, and the S&P 500 benchmark. All series were logarithmically transformed to ensure comparability and eliminate scale effects. The objective was to capture both long-term growth dynamics and correlation across instruments, providing a clearer picture of gold’s portfolio behavior versus equity-based assets.

List of instruments used for the analysis: 

1. Benchmark

• S&P 500 Index → ^GSPC

Broad equity market proxy. Used as a reference for risk-on asset behavior and opportunity cost of holding gold.

2. Spot Commodity

• Gold (XAU/USD) → GC=F

Represents the international spot price of gold in USD, serving as the base reference for all gold-related instruments.

3. Gold Mining Equities (Stock Peers)

→ Role: High beta, equity sensitive proxies for gold exposure.

• Stock 1: Newmont Corporation → NEM

Largest listed gold producer, representative of North American exposure.

• Stock 2: Barrick Gold Corporation → ABX.TO

Major Canadian miner with diversified production base (North America, Africa, Middle East).

• Stock 3: Zijin Mining Group Co. Ltd. → 2899.HK

Key Chinese gold and copper producer, offering emerging-market sensitivity.

• Stock 4: Freeport-McMoRan Inc. → FCX

Diversified mining group with significant gold by-product output.

4. Gold ETCs / ETFs (ETC Peers)

→ Role: Pure exposure to physical gold with minimal tracking error and no operating leverage.

• ETC 1: iShares Gold Trust → IAU

U.S.-listed physically backed gold ETC with over 10 years of history and strong liquidity.

• ETC 2: Xtrackers IE Physical Gold ETC (EUR) → SGLD.AS

European ETC replicating spot gold in EUR

• ETC 3: WisdomTree Physical Gold → GOLD.PA

European physically-backed ETC, denominated in EUR, consistent tracking to bullion.

• ETC 4: ETFS Physical Gold → PHAU.MI (Italian listing)

Tracks spot gold price via allocated physical bars held in HSBC vaults.

5. Derived Asset Classes (aggregated for the analysis)

→ Purpose: Aggregated in the “Correlation Matrix – Asset Classes” to identify structural relationships between financial gold exposure, real asset pricing, and equity risk factors.

• Stock Peers (Average of NEM, ABX.TO, 2899.HK, FCX)
• ETC Peers (Average of IAU, GOLD.PA, PHAU.MI)

This matrix presents the pairwise correlation coefficients among all selected assets over the 2015 – 2025 period:

Key insights:

• Gold maintains a near-zero correlation with the S&P 500 (~ 0.04), reaffirming its role as a hedge asset. Its independence from equity market performance supports gold’s function as a store of value during risk-off regimes.
• Newmont and Barrick Gold (Stock 1 – Stock 2) show a strong mutual correlation (~ 0.8) and significant sensitivity to gold itself (~ 0.6 – 0.7).
• Zijin Mining (Stock 3) shows a noticeably weaker correlation with gold (~ 0.2) than its Western counterparts, driven by its broader metal exposure and the distinctive dynamics of China’s equity market.
• Freeport-McMoRan (Stock 4) registers the lowest correlation with gold among miners (~ 0.2) but a higher correlation with the S&P 500 (~ 0.6). This supports its classification as a diversified miner whose returns depend more on global industrial demand and copper prices than on gold market dynamics.
• iShares Gold Trust (IAU), WisdomTree Physical Gold (GOLD.PA), and ETFS Physical Gold (PHAU.MI) exhibit near-perfect correlations (~ 0.9) with gold, confirming minimal tracking error and validating them as efficient vehicles for physical gold exposure.

This matrix summarizes the average correlation structure among the main asset groups:

Key insights:

• Mining Stocks vs. S&P 500 (~ 0.4): Gold miners exhibit a moderate link to the broader equity market. They still behave like cyclical equities, but their partial detachment reflects the influence of commodity prices and operational factors tied to gold production.
• Gold ETCs vs. Gold Spot (~0.9): ETCs maintain an almost perfect lockstep relationship with physical gold, validating their precision as passive instruments for bullion exposure.
• Mining Stocks vs. Gold ETCs (~0.6): Correlation remains moderate, miners capture part of the gold upside, but operational leverage, market beta, and cost pressures create significant deviations.

This line chart compares cumulative normalized returns of the four main categories over the 2015 -2025 decade:

Observations:

• Gold and Gold ETCs follow an almost identical trajectory, confirming accurate price tracking.
• Mining stocks exhibit higher volatility and amplified cyclical swings, outperforming gold in bullish phases (2020, 2023) but underperforming during downturns.
• The S&P 500 benchmark shows steady, equity driven growth, diverging strongly from gold in both direction and volatility profile.

Overall, the 2015 – 2025 period clearly demonstrates gold’s resilience as a defensive asset and reliable store of value, maintaining stability even during periods of equity market turbulence. Mining stocks, while offering amplified exposure to gold price movements, show significant volatility and sensitivity to broader equity and operational factors, limiting their effectiveness as pure gold proxies. In contrast, gold ETCs have proven to be highly efficient instruments, delivering near perfect replication of spot gold performance and thus serving as the most direct and transparent vehicle for investors seeking physical gold exposure.

Conclusions: gold, the unshakable cornerstone

Beniamino Capraro

Sources:

World Gold Council, 2025: https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2024/central-banks
Strategic Gold, 2025: https://www.strategicgold.com/basel-iii-and-gold
LBMA, 2025: https://www.lbma.org.uk/articles/gold-and-hqla-correcting-misleading-online-information
South China Morning Post, 2025: https://www.scmp.com/week-asia/economics/article/3312461/asia-diversifies-us-dollar-chinese-yuan-gold-bitcoin-driving-change