Gold has surged nearly 30% this year, outperforming most major asset classes. Hedge fund manager John Paulson (Trades, Portfolio) attributes this rise to large-scale purchases by central banks, which are diversifying from paper currency to gold as a reserve asset. Paulson suggests this trend will persist amid ongoing political and economic uncertainties.
Central banks have been significantly increasing their gold reserves, driving the price upward. According to the World Gold Council, global central bank gold purchases reached 1,045 tons in 2024, marking the third consecutive year of exceeding 1,000 tons. This buying momentum has continued into 2025, with net purchases of 18 tons in January and 24 tons in February.
The persistent acquisition of gold by central banks highlights its strategic importance in official foreign exchange reserves, especially against a backdrop of rising geopolitical risks. Paulson notes that the shift towards gold is also fueled by investors moving away from U.S. stocks, bonds, and the dollar in search of safe-haven assets.
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