Gold at $2,900: Why Central Banks Are Buying at Record Pace in 2026

Gold breached $2,900 per ounce in February 2026, setting its 14th all-time high in 12 months. The rally defies traditional models that tied gold inversely to real interest rates and the US dollar. Real rates remain positive at 1.8 percent, the dollar index (DXY) has strengthened 3 percent year-to-date, and yet gold continues to climb.

The explanation lies in a structural shift in demand. Central banks, led by China, Poland, India, Turkey, and Singapore, have become the marginal buyer of gold, replacing the traditional price-setting mechanism of Western institutional flows. This new demand regime is rewriting the playbook for gold allocation — and for the global monetary system.

The central bank buying spree began in earnest after February 2022, when G7 nations froze approximately $300 billion of Russian central bank reserves. For non-aligned nations, this demonstrated that US dollar reserves could be weaponised. Gold, which has no counterparty risk and cannot be frozen by any government, became the obvious alternative.

The People’s Bank of China (PBOC) has been the largest buyer, adding approximately 300 tonnes in 2025 alone. China’s declared gold reserves now stand at 2,450 tonnes, up from 1,948 tonnes at the start of 2023. Analysts estimate actual holdings may be 20-30 percent higher, as China historically under-reports through covert purchases via the State Administration of Foreign Exchange (SAFE).

Poland’s National Bank has been the most aggressive proportional buyer, targeting gold at 20 percent of total reserves (up from 8% in 2023). Governor Adam Glapiński has explicitly stated the geopolitical rationale: proximity to Russia and Ukraine makes reserve diversification an existential necessity. India’s RBI added 75 tonnes in 2025, while Turkey continued its policy of converting dollar reserves into gold after the lira crisis exposed dollar-dependency risks.

Gold’s rally is inseparable from the broader de-dollarisation trend. The dollar’s share of global foreign exchange reserves has fallen from 71 percent in 2000 to 58 percent in 2025. While no single currency is replacing the dollar, gold is absorbing a meaningful share of the reallocation.

Central bank gold reserves now total 36,000 tonnes, valued at $3.4 trillion. As a share of total reserves, gold has risen from 11 percent in 2021 to 16.5 percent in 2026. This is still well below the 40-60 percent levels that prevailed before the Bretton Woods era, suggesting significant potential for further accumulation.

The BRICS nations’ expansion to include Saudi Arabia, UAE, Egypt, Ethiopia, and Iran has added momentum. While a BRICS gold-backed trade currency remains more aspiration than implementation, the political signal is clear: major commodity exporters are actively seeking alternatives to dollar settlement. Saudi Arabia’s gold reserves have increased 38 percent since joining BRICS.

On the supply side, global mine production has plateaued at approximately 3,600 tonnes annually, a level it has maintained since 2018. The pipeline of new projects has been constrained by environmental permitting delays, rising extraction costs (average all-in sustaining cost now $1,380/oz), and the depletion of easy-to-mine oxide ores in favour of deeper, more expensive sulphide deposits.

Recycled gold supply, which typically accounts for 25-30 percent of total supply, has actually declined in 2025. In key markets like India and Turkey, consumers are hoarding rather than selling jewellery at record prices, a behavioural pattern that reinforces the bull thesis. Indian gold imports rose 19 percent in 2025 despite record prices, driven by rural income growth from consecutive good monsoons.

The World Gold Council projects a supply deficit of approximately 400-500 tonnes per year through 2028 if central bank purchases remain above 1,000 tonnes annually. This deficit is being met by drawdowns from ETF holdings (Western investors have been net sellers) and London Bullion Market Association (LBMA) vault stocks.

The traditional view of gold as a 5 percent portfolio hedge is being challenged. In a world of persistent geopolitical fragmentation, central bank reserve diversification, and constrained mine supply, gold has characteristics of a core strategic holding rather than a tail-risk hedge.

Gold delivered a total return of 17.2 percent in 2025, outperforming the Bloomberg Aggregate Bond Index (4.8%) and matching the S&P 500 (17.1%) with significantly lower volatility. The Sharpe ratio for gold over the past three years (1.42) exceeds both US equities (1.28) and US Treasuries (0.61).

From a fair value perspective, JPMorgan models gold at $3,000 by year-end 2026, based on extrapolation of central bank buying trends and declining real rates as the Fed easing cycle continues. Goldman Sachs is more bullish at $3,150, arguing that Western institutional investors have not yet re-entered the market — when they do, the move could be parabolic.

The primary risk to the bull case is a dramatic improvement in US-China relations that reduces the geopolitical premium, or a sharp increase in real rates if inflation re-accelerates. Neither is the base case in 2026, but both would trigger significant gold selling.