Silent Hedge: Should you buy gold as central banks can't stop hoarding?

The 'Gold Put' is the consistent, less price sensitive, Gold hoarding by central banks of various countries as an alternative to US Treasuries.

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The global economy is once again at a dangerous inflection point. According to the DSP Netra Report (September 2025), US tariffs have surged from a modest 2–3% in 2024 to the high teens in 2025—the highest effective tariff rate the U.S. has seen in over a century.

 

Unlike the 2018 trade war, when a strong dollar helped absorb some of the pain, this time the U.S. dollar is weaker—8–10% below its recent peak—exacerbating the inflationary hit of import tariffs. Lower-income households, whose consumption baskets are more goods-heavy, are disproportionately bearing the brunt.

 

The consequences are already visible:

 

Real personal consumption expenditure (PCE) in the U.S. has been flat for six months.

 

Housing inventories have piled up to near-record levels.

 

Construction activity is stalling.

 

Non-farm payroll gains have slowed to under 50,000 per month on a three-month moving average.

 

And critically, the DSP report warns: “The negative impact from tariffs will likely intensify if they continue to remain in force.”

 

Why India Should Worry

 

For India, the stakes are enormous. The U.S. is India’s single largest export destination, accounting for 20% of total exports. Gems and jewellery—a sector where India is globally dominant—are already under a massive 52% tariff.

 

Other sectors—chemicals, textiles, leather, engineering goods—are also feeling the heat. Electronics, particularly smartphones (which account for one-third of India’s electronic exports to the U.S.), remain tariff-exempt for now, but the risk is rising.

 

The real danger, however, is not just bilateral tariffs. As the DSP Netra Report notes, “Trade wars are seldom bilateral.” If the U.S. protectionist wave turns multilateral, Indian exports could face broader restrictions across Europe and Asia. That would be a hammer blow to an economy still heavily reliant on external demand to drive growth.

 

Enter the Hedge: The Gold Put

 

While tariffs, weak consumption, and slowing growth dominate the headlines, there is one asset that has quietly held its ground: gold.

 

Despite headwinds from a still-resilient U.S. dollar, equity markets, and interest rate cycles, gold has continued to shine. The reason lies in what DSP calls the “Gold Put”—a structural surge in central bank gold hoarding since 2022, especially after the Russia-Ukraine war. 

Gold mining firms had their own ‘dot com’ bubble at the peak of the last cycle in 2011.

 

What is the Gold Put?

 

The term “Gold Put” refers to the consistent, less price-sensitive buying of gold by central banks worldwide. Unlike retail investors who buy gold on dips or speculative traders who chase momentum, central banks are buying gold with an entirely different motivation: to diversify away from U.S. Treasuries.

 

Gold is being treated not just as a hedge against inflation, but as an alternative reserve asset—a silent protest against the dollar’s weaponization.

 

After the U.S. used the dollar-based financial system as a sanctions tool during the Russia-Ukraine conflict, many central banks realized the strategic risk of over-reliance on the greenback. This triggered an unprecedented wave of accumulation. 

"Despite these pressures, gold has remained resilient, supported by a structural surge in central bank demand since 2022."

 

Central bank demand for gold has hit record highs since 2022.

 

The trend shows no signs of slowing down.

 

This demand is largely price-insensitive—meaning central banks buy gold regardless of whether prices are rising or falling.

 

In other words, there is now a structural floor under gold prices, much like a put option in financial markets—hence the term “Gold Put.”

 

History Speaks: Gold Hoarding Before Crises

 

The DSP Netra Report provides a historical dataset: major episodes of gold hoarding have often preceded global economic downturns

 

1834–1837: U.S. gold inflows after the Coinage Act were followed by the Panic of 1837.

 

1861–1873: U.S. suspension of gold payments preceded the Long Depression.

 

1933–1938: The U.S. ban on gold hoarding and dollar devaluation to $35/oz preceded the Great Depression’s second leg.

 

1968–1973: The collapse of the London Gold Pool and Nixon’s gold shock preceded the 1973–75 recession.

 

2001–2007: A decade-long bull run in gold preceded the 2008 Global Financial Crisis.

 

2018–2025: Renewed gold accumulation is underway, coinciding with a fragile global recovery and heightened geopolitical stress.

 

The pattern is unmistakable: when central banks hoard gold, they are often preparing for—or unconsciously signaling—the onset of systemic risk. 

Source: DSP. Data as of August 2025

 

Why Gold is Different This Time

 

Historically, gold rallies were driven by factors like:

 

A weakening U.S. dollar.

 

Loose monetary policy and low Fed rates.

 

Inflationary spikes.

 

But in the current cycle, DSP notes something unusual: gold is rallying despite these variables often acting as headwinds.

 

The U.S. dollar, while off its highs, remains relatively strong.

 

Equity markets, particularly in technology, are booming.

 

Inflation is moderating compared to 2022 peaks.

 

Yet gold has not only held firm but scaled new highs. This underscores the strength of the Gold Put—where central bank buying has become the primary driver of gold demand, overshadowing traditional macro factors.

 

The India Angle: Why Gold Matters More Than Ever

 

India sits at the intersection of two vulnerabilities:

 

Trade Exposure: A multilateral trade war could cripple exports, particularly gems, jewellery, and textiles.

 

Currency Weakness: India’s foreign exchange reserves are no longer growing at the pace needed. DSP notes that reserve accretion has slowed to 2013 crisis-era levels

 

In such an environment, gold becomes doubly important for India:

 

As a reserve diversification tool (for the RBI).

 

As a personal hedge for Indian households and investors.

 

Culturally, Indian households already have a long history with gold. But the Gold Put suggests that even at the sovereign and institutional level, gold will play a larger role in the years ahead.

 

Gold Miners: A Leverage Play on the Gold Put

 

Another interesting angle the DSP report highlights is gold mining companies.

 

For much of the past decade, gold miners massively underperformed—drowning in debt, overinvesting in capex, and struggling with profitability. But the landscape has shifted:

 

Since April 2024, gold miners have begun to outperform broader equity markets.

 

Profitability is at record highs. The difference between current gold prices (~$3,400/oz) and miners’ “all-in sustaining costs” is the largest ever.

 

Companies are exercising greater capital discipline compared to the 2010–11 bubble.

 

While valuations are no longer dirt-cheap, they remain close to long-term averages. For investors, gold miners represent a leveraged play on the Gold Put—higher risk than physical gold, but with potentially higher returns.

 

What This Means for Investors

 

So, how should ordinary investors think about the Gold Put?

 

Diversification Matters

 

DSP’s analysis of return distributions since 1973 shows that gold has a positive skew (occasional outsized gains during crises), while equities like the S&P 500 have a negative skew (vulnerable to sharp drawdowns).

 

A multi-asset portfolio blending equities and gold produces a smoother, more resilient return profile

 

Don’t Try to Time Gold

 

Just like SIP investors can’t reliably time market tops or bottoms, timing gold purchases around geopolitical crises is difficult.

 

The Gold Put implies that steady, long-term accumulation may be wiser than speculative trading.

 

Think Beyond Jewellery

 

While Indian households love physical gold, investors should also consider gold ETFs, sovereign gold bonds, and even select gold mining equities to diversify exposure.

 

Hedge Against Policy Risk

 

Tariffs, sanctions, currency wars, and fiscal imbalances are all policy-driven risks. Gold remains one of the few assets largely insulated from political manipulation—especially when central banks themselves are the biggest buyers.

 

The Road Ahead

 

The world is entering a period of profound uncertainty:

 

U.S. tariffs are at a century-high.

 

Global trade wars threaten to go multilateral.

 

India’s export engine faces mounting risks.

 

Currency reserves are under pressure.

 

Against this backdrop, the Gold Put represents more than just a market anomaly. It is a structural shift in how the world’s biggest financial players—central banks—are thinking about risk, sovereignty, and the future of money.

 

For individual investors, the lesson is clear: while equities, bonds, and real estate will remain core pillars of wealth creation, gold deserves a permanent seat at the table. Not as a speculative punt, but as a strategic hedge—an anchor in stormy seas.