Spot gold is holding around US$3,274, edging 2.9% lower on the week yet still about 25% stronger year-to-date and only a month removed from its record intraday print of US$3,500 in April. Traders link the rally to the current geopolitical environment alongside the constant yo-yo of tariff policy in the US.
In this policy-and-conflict cocktail, gold’s most useful property is that no sanctions clerk can sign it away.
In a survey published this June, the World Gold Council found 76% of seventy-three reserve managers expect global bullion holdings to rise over the next year, while almost three-quarters see their own dollar hoards shrinking—both series records.
Hard flows confirm the mood: net central bank buying hit 244 tonnes in Q1, keeping 2025 on pace for a fourth consecutive year north of 1,000 tonnes. At current prices, that diverts more than a quarter trillion dollars away from Treasuries since 2022.
Why trade bills for bars?
Gold is “outside money”: an asset no sanctions clerk can freeze. Protectionist tariffs are lifting import costs, widening US deficits and stoking inflation angst. Real yields wobble while the weaponisation of dollar clearing after Crimea and again after the 2022 Ukraine invasion still echoes.
Against that backdrop, bullion’s lack of counter-party risk suddenly matters more than its lack of coupon.
Turning a bar into cash now takes less than forty-eight hours. A sovereign lender places bullion with a bullion bank; the bank pledges the metal—usually via an unallocated account at the Bank for International Settlements—and raises dollars, dirhams, or yuan at a thin spread to SOFR. Those funds pay for oil, grain, or semiconductors, and the lease rolls every ninety days.
London’s three-month swap points went negative in early April, traders told Kitco; more visible stress showed up in outright leasing costs. A Financial Times report put one-week London lease rates near 10% annualised in February, the highest since 1999, as metal rushed to New York to capture CME premiums.
The BIS balance sheet has become an unofficial stress gauge. Its gold swap book peaked at about 157 tonnes in August 2024, fell below 100 tonnes by October and slid to just 5 tonnes in April 2025, according to Robert Lambourne’s reading of the monthly statement. When the footnote all but disappears, sovereigns are striking bilateral leases off-balance sheet—and the official market is whispering, not shouting.
Petro-gold corridor
Russian customs data show Moscow exported 75.7 tonnes of bullion to the UAE between February 2022 and March 2023, versus 1.3 tonnes in the prior year. Bars swap for hard currency in Dubai, likely finance sanctioned turbine parts or Iranian drones, and are back-filled by new Siberian output so the lease can roll indefinitely without touching SWIFT.
A parallel circuit now underpins Gulf-to-India oil flows. In August 2023, Indian Oil reportedly paid Abu Dhabi National Oil Company for a million-barrel cargo in rupees, inaugurating INR-AED crude settlement; a year later the Reserve Bank of India formally asked commercial banks to route more UAE trade through the rupee-dirham channel.
According to two London bullion-bank trade finance desks, the standby letters of credit behind those local currency shipments are increasingly collateralised with short-dated gold leases rather than Treasuries.
Hard data corroborate the collateral squeeze: the Financial Times reports that a rush to lease bullion has lengthened Bank of England withdrawal queues to four–eight weeks.
The same shortage pushed Indian jewellers’ traditional 1.5%–3% leases above 6 percent, squeezing margins for Titan, Kalyan, and others.
Records still show Saudi gold holdings static at 323 tonnes—a reminder that any incremental leasing remains off-balance sheet, yet wholly consistent with the surge in London lease demand.
Scarcity on two continents is the market telling you bars are being rehypothecated faster than refineries can replace them.
Collateral scarcity, dollar drain
Each tonne posted as collateral removes roughly US$107 million of potential demand at Treasury auctions. Reuters reporting shows around 380 tonnes of bullion shipped from London to New York in late-2024/early-2025, implying an estimate of 400 tonnes leasing flow once subsequent withdrawals are added. At today’s price that removes about US$40 billion of potential foreign official demand just as Washington gears up to fund tariff, industrial-policy, and Middle-East outlays.
Analysts inside primary dealer desks already debate whether the Federal Reserve would cap ten-year yields near 5% should term-premium stress surge again, or will broaden the Fed’s Standing Repo Facility to lower-tier collateral to keep funding spreads anchored. Either path embeds fiscal dominance, but the drain is happening quietly, one bar at a time.
For sceptics, Standard Chartered metals strategist Suki Cooper injects a note of sobriety. In a Reuters price-poll, she said that “Price risks persist given the physical market is wavering and central-bank flows — while positive — are slowing,” reminding traders that Treasuries remain the world’s deepest, most fungible collateral pool even after this year’s leasing squeeze. The upshot: gold may be gaining operational relevance, but the plumbing that would let it replace US paper is far from built.
Meanwhile the BRICS bloc continues to test BRICS Pay, a cross-border platform for settling trade in local and digital currencies—explicitly designed to reduce SWIFT dependency. Early public documents mention CBDCs and tokenised national currencies but say nothing about the oft-rumoured 40% gold backing. The very choice of a decentralised, sanctions-resilient architecture is itself a political signal: BRICS wants settlement built on assets no single hegemon can weaponise.
What to watch:
- A stubborn front-end lease-curve inversion signals acute spot-metal scarcity and frenetic rehypothecation.
- If the BIS gold-swap line disappears, sovereigns have moved all swapping off Basel’s balance sheet.
- A WGC tally above 1,000 tonnes for 2025 would confirm central banks are systematically trading Treasuries for bullion.
- Any Fed step to widen SRF collateral—even talk of it—would officially bless the shift from bills to bars.
Lease curves, BIS footnotes, and forward-swap prints are not cocktail-party metrics, yet they are where the regime change first surfaces. Today all three point in the same direction: outside money is financing inside-money trade, and every rehypothecated tonne is a vote of no confidence in the sanctions-risk embedded in paper claims.
Ignore the plumbing and the market will remind you—one leased bar at a time.
Information for this story was found via Financial Times, Reuters, and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
