Gold’s Rational Resilience in an Irrational World

In 2009, Willem Buiter dismissed gold as a “6,000-year-old bubble.” Sixteen years on, he continues, in his recent FT article, to see its ascent as proof of irrationality. Yet what may be irrational is not gold’s rise but our repeated failure to understand why it endures.

To view gold purely as a commodity that must revert to some theoretical-average is to misread both the history of money and the current architecture of global finance. Gold’s appeal is mathematical — a hedge against the failures of politics and the fragility of promises.

A bubble presumes collective-delusion. Yet when the most conservative institutions on earth are accumulating an asset, the accusation begins to sound ideological rather than analytical. If gold were truly a speculative mania, it would have long since collapsed under the weight of its own supposed-irrationality. Instead, it has endured through crises, currency realignments, and the birth and death of monetary systems. Its longevity is evidence of utility that transcends cycles of fashion and theory alike.

When politics falters, which more often than not has, monetary policy becomes its backup moat and regulation its custodian. This is despite the elasticity of independence of financial regulators, at the boundaries set by the very core of political legislation. Often fiscal excess masquerades as stimulus, monetary accommodation becomes political balm, and central banks are left to perform acts of balance that elected leaders will not. When institutions of governance blur accountability for consequence, the burden of stabilising nations shifts from parliaments to financial-policymakers. That is when gold’s relevance is renewed, but as refuge from its failures.

Gold has no yield, no coupon, no dividend. But that is precisely why it matters. Its virtue lies in its stillness. It does not default, it does not depend on trust in any one institution, and it does not bend to the credibility of governments or algorithms. In a financial system where liquidity can vanish at the speed of a keystroke, gold’s stubborn inertia is the last form of stability that cannot be printed, paused, or politically sanctioned.

Buiter sees gold’s price as speculative detachment from fundamentals. Yet the fundamentals of modern money are hardly firm ground. Since 2009, the balance sheets of the world’s major central banks have expanded by over $20 trillion.

Fiscal dominance has blurred the lines between monetary prudence and political expediency. In such a world, the very notion of a “fundamental value” becomes elastic. When the anchor of value itself floats, gold’s immovability becomes its logic, not its flaw.

Buiter’s charge that gold lacks intrinsic worth because its industrial use is limited confuses function with faith. Value in finance is not confined to physical utility but extends to psychological assurance. Fiat currencies have no “industrial” use either; their worth is entirely institutional. Gold’s utility is its immunity: it requires no sovereign promise, no algorithmic validation, and no balance-sheet counterpart. That makes it the only form of money whose credibility is self-contained.

The push on central banks to sell gold, to “rationalise” their reserves, misunderstands why they even hold it. Since the global financial crisis, official sector demand has intensified. Central banks purchased more than 1,000 tonnes of gold in 2023, the second-highest annual addition on record. The buyers are sovereign institutions with long memories: the People’s Bank of China, the Reserve Bank of India, the Central Bank of Turkey, and the National Bank of Poland among them. These are not speculations or sentimental actors clinging to a past order. They are pragmatic guardians responding to a new disruptive and volatile world (dis)order.

These institutions, by design, are meant to be conservative in thinking and pragmatic in action. With that design, it is only the evolution of risk that drives their behaviour. The global reserve composition itself is changing. The US dollar still accounts for roughly 58% of allocated reserves, down from over 70% two decades ago. This quiet diversification is rational risk management. Especially when the world’s reserve currency can be wielded as a blunt and harsh instrument of foreign policy to push sovereigns to become vassals, prudence demands alternative anchors.

Gold’s virtue is neutrality. It offends no nation and belongs to none. It cannot be frozen, blocked, or repudiated by decree. Sovereignty requires assets that lie beyond another’s permission. Gold offers precisely that. For regulators and central bankers, this is also a form of institutional insurance.

To liquidate official gold holdings would be to abandon precisely that insurance. It would strip central banks of their one politically neutral hedge at a moment when every other instrument of value is exposed to jurisdictional, technological, ideological or “one-current-global-keyman” risk. The cost of holding gold may seem visible in calm times; the cost of not holding it is revealed only when trust fails, and by then, it cannot be repurchased at any price.

Buiter calls the world “a thoughtless prisoner of history” for treating gold as a store of value. The thoughtless prisoner, rather, is one who assumes the post-war and twenty-first-century monetary order will remain unchallenged. Every fiat regime eventually meets its own contradictions - between fiscal appetite and monetary credibility, between promises made and promises kept.

Gold also aligns with the contemporary policy trilemma — the struggle to maintain fiscal expansion, monetary credibility, and exchange-rate stability all at once. Few instruments can hedge these simultaneously. Gold, unencumbered by domestic politics or debt dynamics, can.

Faith in fiat depends ultimately on faith in politics, a dependency too many economists choose to overlook. When governments trade credibility for convenience, allies for supremacy, inflation follows as the tax on denial. Central banks may print liquidity, but they cannot print legitimacy. 

Critics often dismiss gold for its lack of yield. But opportunity cost presumes a world of risk-free returns. When real yields are structurally negative, when even sovereign bonds carry political risk, the relevant question for central banks is no longer “What will this earn?” but “What will this survive?” Gold answers the latter more reliably than any other asset. It provides not the return on assets, but the return of assets, a distinction we must not ignore.

Economists respect evidence, not emotion. And the data support gold’s systemic role. Its correlation with risk assets turns negative during crises; its liquidity deepens precisely when markets seize. That counter-cyclicality is a measurable resilience. For institutions charged with ensuring liquidity when confidence collapses, such behaviour is a proactive one.

Liquidity itself is an illusion of tranquillity. In moments of systemic stress, assets deemed “risk-free” reveal how conditional their liquidity truly is. Government debt can freeze under sanction, corporate paper can implode under panic, and digital markets can vanish behind firewalls. Gold alone retains the peculiar quality of becoming more liquid when fear peaks.

As financial systems digitise, it is fashionable to deride gold as archaic. Yet the rise of central bank digital currencies, tokenised deposits, and instant settlements paradoxically strengthens the case for tangible trust. Digital infrastructure can accelerate money, but it cannot anchor it. Gold need not compete with innovation; it coexists with it.

As the architecture of money becomes more virtual, the need for something immutable, beyond code, politics, or connectivity only grows. But the recent exuberance for cryptocurrencies and other digital tokens has taken this enthusiasm for digitisation to reckless extremes. What began as a libertarian experiment in decentralisation has, in some circles, mutated into a belief that code can substitute for credibility.

Some governments, eager to appease their tech sector and “digital-forward”, are indulging this ideology as if it were fiscal prudence by other means. It is not. It is the financial equivalent of outsourcing trust to mathematics as sole factor and mistaking that for sovereignty. Cryptocurrencies promise liberation from the State, but they deliver dependence on speculation.

The ideological fervour that drives this crypto-evangelism should worry any serious policymaker. The anarchist logic that “no one should control money” sounds seductively democratic until one asks who will guarantee stability when it unravels. A system that pretends to be decentralised cannot replace the institutional discipline of central banking.

The irony is that much of this moral commentary on prudence comes from those whose own institutions thrive(d) on leverage and opacity. The same financial establishments that sell complexity as sophistication now dismiss gold’s simplicity as superstition. These are the same entities that once packaged sub-prime risk as innovation and now peddle crypto derivatives as progress. It is convenient to preach restraint after profiting from excess, and to rediscover virtue only when the bill for past exuberance has come due.

Gold’s relevance is also social and geopolitical. For much of the Global South, gold is a pragmatic reserve of survival. Families, small savers, and governments alike understand that it holds value when promises from abroad waver. For policymakers, gold’s role also sits squarely within macroprudential stability. Central banks now serve not only as monetary authorities but as stewards of financial resilience. Within that broader mandate, gold functions as a non-correlated capital buffer, the only reserve asset whose worth does not depend on the solvency of the system it insures.

To regulators and economists, efficiency is often a virtue. But efficiency applies to growth; resilience applies to survival. Gold embodies the latter. It offers optionality under duress, and credibility when all else fails. It is not meant to outperform equities or bonds in normal times — only to outlast them when normality collapses.

Nor is gold merely an inflation hedge, as its detractors caricature it. Its power lies in protecting confidence itself. Inflation erodes purchasing power, but loss of belief erodes the system. Gold may not perfectly track consumer prices, yet it consistently tracks disbelief — the moment when citizens stop trusting statistics, bonds, or their own central bank. In that sense, it hedges not against prices but against politics.

Gold’s strength is not that it avoids politics, but that it neutralises it. In an age when monetary systems are increasingly weaponised, when reserves can be rendered inert by foreign edict, the idea of a truly apolitical store of value is essential.

If financial stability were guaranteed, if fiscal restraint were credible, and if geopolitics were predictable, perhaps gold would indeed be redundant. But none of those conditions hold. The world remains indebted, divided, and digitally exposed. Gold’s ascent, therefore, is not a bubble but a barometer — of anxiety, of adjustment, of realism.

We often celebrate strong foundations and towering pillars as symbols of stability. Yet earthquakes do not test height or beauty, they test flexibility, design, and depth. In Japan, buildings are engineered to absorb shock rather than defy it, allowing them to endure seismic forces that would shatter more rigid structures. Gold plays a similar role in modern finance: it does not prevent tremors, but it ensures that the system survives them.

If the mission of a central bank is to preserve credibility through uncertainty, gold remains its simplest, least political instrument of trust. Gold is memory against fiscal-amnesia.