The New Arithmetic of Gold

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The U.S. Federal Reserve has raised interest rates for the first time since 2023. Yet gold remains historically strong, challenging conventional assumptions and putting a fresh focus on how — and where — central banks hold their reserves.

On 16 September 2026, the U.S. Federal Reserve raised its policy rate by a quarter of a percentage point, bringing the target range to 3.75–4 per cent. The unanimous decision was its first increase since 2023. The Fed said inflation remained elevated, while policymakers’ projections suggested some officials saw scope for further tightening.

The conventional response from gold should be familiar. Gold pays no interest. When returns on relatively safe, interest-bearing assets rise, so does the opportunity cost of holding it. Other things being equal, that should put downward pressure on its price.

History offers examples. Gold weakened sharply in the early 1980s as the Federal Reserve, under Paul Volcker, raised interest rates to exceptionally high levels. It also fell significantly in 2013, a year marked by the ‘taper tantrum’, when markets reacted to signals that the Fed would reduce its bond purchases.

Yet the present picture is more complicated. Gold has remained at historically elevated levels despite higher real, or inflation-adjusted, interest rates. The relationship between yields and gold has not disappeared. But it no longer tells the whole story.

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The familiar explanations still matter: persistent inflation, geopolitical instability, concerns about currency values and sustained central-bank purchases. The World Gold Council’s 2026 survey found that 89 per cent of respondents expected global official gold reserves to increase over the following 12 months. In the same survey, 45 per cent expected their own institutions to increase their holdings.

The survey also found that 74 per cent expected the U.S. dollar’s share of global reserves to decline over the next five years. These are expectations, not confirmed buying commitments. But they offer a revealing insight into how reserve managers are approaching diversification.

Another consideration is receiving greater attention: where gold is stored, which legal jurisdiction governs it and how quickly it can be put to use.

What higher rates mean for sovereign balance sheets

Higher interest rates do more than influence asset prices. They also increase governments’ borrowing costs as new debt is issued and existing debt is refinanced. The United States continues to benefit from the dollar’s central role in global finance and the depth and liquidity of its Treasury market. But its growing debt and rising interest bill have become increasingly important considerations for investors and reserve managers.

U.S. gross federal debt passed $40 trillion in 2026, while the fiscal-year deficit had reached approximately $1.97 trillion by the end of August, according to Treasury data. Federal net interest costs also passed $1 trillion for the first time during the fiscal year. These figures do not, on their own, signal an imminent credit crisis. But they show how debt servicing is taking an increasingly significant place in the fiscal equation.

That distinction matters. A country can retain strong institutions, deep capital markets and a globally important currency while facing greater pressure from borrowing costs. The task of reserve managers is not to make sweeping political judgements. It is to assess how changing conditions affect the security, liquidity and value of national assets.

There is also a mechanical effect. When market yields rise, the prices of existing fixed-income securities generally fall. Central banks holding bonds bought at lower yields may therefore face valuation losses, even when those securities remain highly liquid and are ultimately repaid.

This brings reserve managers back to a familiar question: how should they balance return, liquidity and risk? Gold provides no regular income, but its value does not depend on repayment by a particular government. Its appeal can therefore increase when diversification and protection against systemic uncertainty become greater priorities.

None of this means gold should automatically replace government securities. Treasuries serve functions that gold cannot fully replicate, including collateral use, liquidity management and monetary operations. The question is one of portfolio balance, not wholesale substitution.

The question of location

A third dimension is legal rather than financial. It concerns the jurisdiction in which an asset is held and the circumstances in which access to it might be restricted.

The immobilisation of approximately $300 billion in Russian central-bank assets after Russia’s invasion of Ukraine in 2022 made this issue particularly visible. Afghanistan’s frozen reserves had already shown that sovereign assets held abroad could become subject to decisions taken by other governments.

Such measures are adopted under national legal and policy frameworks, and their justification remains contested. For reserve managers, the narrower lesson is that custody comes with jurisdiction. Assets held abroad are subject to the legal environment in which they are stored or administered.

That does not make overseas custody inherently unsafe, nor does every country face the same exposure. Legal agreements, diplomatic relations, institutional protections and the nature of the asset all matter. But recent experience has made jurisdictional risk a practical consideration rather than a purely theoretical one.

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The Dutch central bank, De Nederlandsche Bank (DNB), offers a useful example of how reserves can be repositioned without abandoning established financial centres. Between March and August 2026, it shifted approximately 86 tonnes of gold from holdings in the United States and Canada to London. DNB said the move improved tradability and crisis preparedness, allowing it to mobilise gold more quickly in an emergency.

The operation involved more than moving bars between vaults. DNB sold approximately 59 tonnes held in New York and bought gold in London that met international market standards. More than 27 tonnes were physically transferred from the United States and Canada to the Netherlands, while a similar quantity was moved from the Netherlands to London.

The details are important. DNB’s stated objective was not to reject U.S. or Canadian institutions, but to make its reserves easier to use in a crisis.

London and New York continue to offer substantial advantages, including market depth, established legal systems, clearing infrastructure and extensive precious-metals expertise. These strengths help explain why many central banks continue to hold gold in established overseas centres.

What appears to be changing is how risk is assessed at the margins.

How much does custody risk matter?

It would be easy to overstate custody risk. It is not the principal driver of daily gold prices. Real interest rates, inflation expectations, currency movements, central-bank purchases and geopolitical developments remain more immediate influences.

Nor should the recent divergence between gold and real yields be treated as proof of a permanent change. The conventional view - that real yields remain a central influence and the divergence may prove temporary  - deserves serious consideration. Gold responds to changing expectations. One unusual period does not create a new rule.

The more defensible argument is narrower. Investors and central banks may increasingly value gold as protection against credit, currency and geopolitical risks, not merely as an inflation hedge. If so, where that gold is held becomes increasingly relevant to how useful it is.

The World Gold Council’s 2026 survey provides some evidence of that shift. It found that nine per cent of respondents had increased domestic storage and 10 per cent had diversified overseas storage locations during the previous 12 months. Seven per cent planned to increase domestic storage and nine per cent planned to diversify overseas storage over the following year.

Diversifying custody arrangements is neither inherently hostile nor unprecedented. Central banks have long spread reserves across currencies, asset classes and locations. Some favour domestic storage for control and public confidence. Others prefer international centres for liquidity and easier access to trading and lending markets.

Neither approach is universally suitable. Domestic storage requires secure infrastructure, appropriate risk cover, professional expertise and institutional capacity. Overseas custody can offer market access and operational efficiency while introducing jurisdictional considerations.

The questions are practical, not ideological. Under whose law is each asset held? How quickly could it be converted into usable liquidity? What contractual and operational protections exist? When were those arrangements last reviewed?

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These are not verdicts on particular countries or financial centres. They are questions that reserve managers may need to revisit as international conditions change.

Gold’s recent performance does not prove that interest rates have lost their importance. Nor does a review of custody arrangements establish a mass retreat from existing markets. More cautiously, it suggests that reserve managers are broadening the criteria they use to assess security.

The new arithmetic is no longer only about what an asset earns or what it is worth. It is also about whether it can be accessed when it is needed.

Reassessing how gold is stored need not be an act of distrust. It is part of the routine task of managing national reserves in a changing world.

About the author: 

Qaiser Nawab is chairman of the Belt and Road Initiative for Sustainable Development (BRISD), an international platform fostering cooperation and innovation across Asia, Africa and Latin America.

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Gold U.S. Federal Reserve DNB Debt US interest