Dedollarisation and The Petrodollar System: Why I Think Gold Will Surge Again
Central banks are quietly moving out of dollars and into gold. Here is what they know that most investors don't.
A quick note before we begin: this blog was inspired by a video from Brian Kim at ClearValue Tax, whose work I have followed and respect. I have taken his core framework as a starting point, expanded on it significantly with additional research, data, and my own analysis, and added sources throughout. I'd encourage you to check out his channel here — he breaks down complex financial topics in an accessible way.
Gold has had a strong bull run this past year. But I strongly believe it is not over.
Central banks and governments around the world have been quietly piling into gold at record levels and they are not stopping.
The question is why?
Here is the short answer: the US is slowly losing its grip on the global financial system. And the data is hard to ignore.
US debt-to-GDP is at a record 134%. The government spent nearly $2 trillion more than it earned in 2025. Countries are quietly moving their reserves out of US dollars because they are genuinely afraid the US can freeze their assets at any time. And the Federal Reserve’s independence is now openly being questioned.
All of this weakens the dollar. And when the dollar weakens, gold rises.
I went deep on this. Here is what I found.
Why Every Country in the World Has Been Forced to Buy Dollars — The Petrodollar System
Before we get into why this all matters, let us quickly establish what the petrodollar system actually is, because without understanding the foundation, the cracks are hard to see.
The petrodollar system is the arrangement where oil is priced and traded globally in US dollars. Since oil is the world’s most traded commodity, this creates an almost mechanical, perpetual demand for the US dollar. Think of it like this: every country in the world needs energy to function. Every country that needs to buy oil must first acquire US dollars. That one simple fact has underpinned America’s financial dominance for the past 50 years.
Because the dollar is the world’s reserve currency and the settlement currency for oil, governments and central banks have every reason to hold enormous stockpiles of it. And where do you park idle dollars? You buy US Treasury bonds, essentially, you lend money to the US government and earn interest while you wait. This recycling of petrodollars back into US treasuries is what has allowed America to run persistent budget deficits without facing the consequences that would cripple any other country.
Source: National Deficit | U.S. Treasury Fiscal Data
What Happens If the World Stops Buying Oil in Dollars?
Here is where it gets interesting and uncomfortable for anyone heavily exposed to the US dollar.
If countries no longer need to acquire US dollars to purchase oil, global demand for the dollar falls. A currency, like any other asset, is subject to supply and demand. Less demand means the dollar weakens. And a weaker dollar means your purchasing power erodes. You can buy less with every dollar you earn!!
For the average American household, this is not an abstract problem. It means higher prices for imported goods, higher energy costs, and wages that struggle to keep pace with the declining value of the currency in their pocket. For the US government, it means rising borrowing costs and a deteriorating fiscal position. The petrodollar system is not just financial architecture, it is the invisible subsidy that has kept the American standard of living intact for generations.
You can track the value of the USD dollar over time by looking at the US dollar index (DXY)
The Wake-Up Call: Central Banks Are Already Moving Away from the Dollar
This is no longer a theoretical risk. It is happening right now.
In April 2026, news emerged that UAE Central Bank Governor Khaled Mohamed Balama had privately warned US Treasury officials that if the dollar shortage caused by the ongoing Iran war continues, the UAE may have no choice but to price a portion of its crude oil sales to China in yuan rather than dollars.
To appreciate the significance of this, consider the analogy: the UAE warning the US that it might stop using the dollar for oil is like the local currency issuer telling the bank, “If you do not help us, we will take our business elsewhere.” For decades, Gulf states have been the most loyal pillars of the petrodollar system. Their oil revenues flood into US Treasuries. Their sovereign wealth funds park trillions in US assets. If even one of them publicly pivots to yuan settlement, it is a structural rupture , , not just a headline.
Why Are Central Banks Moving Away from the Dollar?
1. The Dollar Was Weaponised and Everyone Noticed
When Russia invaded Ukraine in February 2022, the G7 and allied nations froze approximately $300 billion in Russian Central Bank reserves.
What seemed like a decisive act of economic warfare had an unintended consequence: it sent a chilling signal to every central bank on the planet.
The message was clear:
“Your dollar reserves are only safe as long as you stay in Washington’s good graces. The moment you cross a political line, your savings can be seized overnight.”
Think of it this way: imagine you deposited your life savings into a bank, and one day you watched the bank freeze your neighbour’s account, not because of fraud, but because of a political disagreement. Would you feel comfortable leaving all your savings there? Of course not! That is exactly how dozens of central banks responded after 2022.
Even former US Treasury Secretary Janet Yellen publicly acknowledged this risk, warning that using financial sanctions linked to the dollar could, over time, “undermine the hegemony of the dollar.” Over 20 years, official US sanction designations have risen more than tenfold. Countries like Iran, Venezuela, North Korea, and Cuba were forced out of the dollar system the moment sanctions hit. Nations not yet sanctioned began hedging pre-emptively.
The 2022 Russia asset freeze was not just a financial manoeuvre, it was an advertisement for dollar alternatives. The US plans to weaken Russia’s economy totally backfired on them!
2. America’s Fiscal Position Has Become Indefensible
Source: United States Debt Clock - National debt of United States
The US national debt now exceeds $39 trillion. In May 2025, Moody’s downgraded the United States’ credit rating from AAA to Aa1 , the first such downgrade in over 100 years, making it the last of the major agencies to strip America of its top rating.
Source: United States Debt Clock - National debt of United States
The US federal debt-top-gdp ratio is about 134% now in 2026, up from 123% in 2025. Interest payments on the debt are already consuming an enormous portion of federal revenue, and Moody’s forecasts that figure could climb to 30% of all federal revenue by 2035.
Here is a simple analogy: imagine a household that earns $100,000 a year but spends $107,000 every year and that gap keeps growing. At some point, the people lending that household money start to wonder: will we ever get paid back? That is the question foreign central banks are now asking about US Treasuries. Every dollar held in a Treasury bond is a bet that the US government will manage its finances responsibly. That is a bet fewer and fewer are willing to make at scale.
3. Is the Fed Still Independent?
The credibility of the world’s reserve currency rests on one critical assumption: that the central bank setting monetary policy operates free from political interference.
In early 2026, with Jerome Powell’s term as Fed Chair set to expire in May 2026, European policymakers, including figures at the Bundesbank, publicly voiced concerns about potential political interference in the Federal Reserve’s future leadership. A Fed that prints money to fund government deficits rather than to manage inflation is not an independent central bank. It is a political tool. And no central bank in the world wants to hold reserves in a currency managed by a political tool.
4. America’s Economic Weight Has Shrunk
The dollar’s dominance as a reserve currency was cemented in the post-World War II era, when the United States represented an enormous share of global economic output. That world no longer exists.
According to J.P. Morgan’s research, the dollar’s share of global FX reserves has declined in direct proportion to the US share of global GDP and global exports. As the US economy becomes a smaller slice of a much larger global pie, the case for holding everything in dollars weakens automatically. This is not a sudden crisis it is a slow, and an ongoing process.
Defending the Petrodollar Was One of the Key Causes of the Iran War
Few geopolitical analysts have stated this plainly enough, so let me say it directly: one of the key catalysts for the Iran conflict was the active erosion of the petrodollar system.
Iran had been pricing oil in yuan for Chinese buyers, routing shipments through shadow tankers to circumvent US sanctions. The Strait of Hormuz, through which roughly 20% of global oil flows became the lever Iran used to force yuan-denominated transactions. Analysts noted that this conflict is partly about who controls how and where oil flows, and critically, in what currency it is settled.
The bitter irony is this: Iran’s closure of the Hormuz Strait has dramatically accelerated yuan oil pricing. Every week the strait stays closed, more yuan-denominated payment infrastructure gets built, normalised, and entrenched. Even if a ceasefire is reached and the strait reopens, the question is whether that infrastructure the bilateral payment rails, the CIPS-linked settlement systems simply stays in place. If it does, you have a structural shift that does not reverse.
The Process of Dedollarisation Is Already Visible in the Data
When governments and central banks hold dollar reserves, they earn a return by parking that cash in US Treasury bonds. The chain of events is straightforward:
dollar reserves go up, Treasury demand goes up, yields stay low, and the US borrows cheaply.
Now reverse that chain.
Central banks reducing their dollar reserves means less demand for Treasuries. Less demand for Treasuries means bond prices fall and yields rise automatically. Simultaneously, the US government, running persistent deficits, must keep issuing new Treasuries to fund itself.
With fewer willing buyers, it must offer higher yields to attract investors. Higher yields mean higher interest payments. Higher interest payments make the deficit worse. A worse deficit means even more Treasury issuance. More supply hits a market with shrinking demand. Yields rise further.
Source: CNBCCheck out ‘s stock price (US30Y) in real time
Source: US10Y: 4.306% -0.017 (-0.3932%)
This is a reinforcing loop, not a one-time event. It is what happens when the petrodollar recycling mechanism begins to break down.
Source Central Banks | World Gold Council
The gold demand data tells a parallel story. According to the World Gold Council, central banks bought over 1,000 tonnes of gold in each of 2022, 2023, and 2024, the first time three consecutive years have breached that threshold since the 1950s. In 2024 alone, central bank gold purchases totalled 1,045 tonnes, more than double the average annual pace between 2010 and 2021.
These are not speculative purchases. These are sovereign balance sheets diversifying away from dollar-denominated assets and into something that cannot be frozen, cannot be confiscated by political decree, and cannot be printed.
Source: Gold Demand Trends: Q4 and Full Year 2025 | World Gold Council
How I’m Thinking About Positioning for Dedollarisation
So by now, you should know that the conditions in the world don’t look so promising and I’m sure as an investor you are afraid how the markets will impact your investment portfolio. So what assets have historically done well in environments like this?
1. Physical Gold and Gold ETFs (GLD)
Gold is the ultimate reserve asset because no government can manufacture it on demand. Unlike fiat currencies, the supply of gold is constrained by geology, not by a central bank’s printing press. When confidence in fiat money erodes, gold historically fills the vacuum.
The cleanest way to access this is through ETFs like GLD (SPDR Gold Shares) or IAU (iShares Gold Trust), which hold physical gold on your behalf. For those who prefer direct ownership, allocated gold accounts or physical bullion are options though storage and insurance costs apply.
2. Gold Mining Stocks
If gold is a lever, gold miners are a longer lever. Mining companies have fixed operational costs. When gold prices rise, those costs stay relatively stable but revenues surge meaning margins expand dramatically. This is called operating leverage.
For example, if a miner’s all-in cost to produce an ounce of gold is $1,500 and gold trades at $2,000, their margin per ounce is $500. If gold rises to $2,500, that same margin doubles to $1,000, a 100% increase in profitability from a 25% move in gold. That asymmetry is why miners tend to outperform gold itself in bull markets. The flip side is that they underperform badly when gold falls, so position sizing matters. Established names like Newmont, Barrick, and Agnico Eagle are the more liquid choices (I’m not recommending any of these stocks specifically — always do your own research).
3. Silver
Silver tends to follow gold during monetary crises but with substantially more volatility. Historically, it has outperformed gold in the later stages of a dollar decline, as broader public participation in the precious metals trade increases.
What makes silver distinct is that it carries a dual demand driver: monetary demand (as an alternative reserve asset) and industrial demand (solar panels, electric vehicles, electronics, medical devices). This industrial dimension means silver benefits from the global clean energy transition regardless of what the dollar does. Historically, silver ETFs like SLV have offered more leveraged exposure to precious metals moves.
4. Broad Commodities
When the dollar weakens, commodity prices rise almost automatically because most commodities are priced in dollars globally, a weaker dollar means it takes more dollars to buy the same barrel of oil, tonne of copper, or bushel of wheat. Commodities are real assets. They hold purchasing power independent of what currency they are denominated in. Broad commodity ETFs like PDBC or DJP are examples of how some investors access this exposure.
This is exactly what central banks are doing at the sovereign level systematically swapping paper claims on governments for real, physical assets.
What I Am Watching Now
1. Saudi Arabia’s Oil Pricing Decision
This is the single most important domino. Saudi Arabia still prices the vast majority of its oil in dollars. If Riyadh formally announces yuan-denominated oil contracts at meaningful scale, beyond the current approximately 45% sold to China. That is the moment the petrodollar system breaks structurally, not just at the edges. Watch for any joint Saudi-China energy announcements or expansion of their existing $7 billion currency swap agreement. (If you want them delivered to your inbox without having to hunt for them, I send out a daily market brief covering exactly this, here)
2. The New Fed Chair Appointment
Jerome Powell’s term expires in May 2026. Trump nominated Kevin Warsh as the new FED chair and Warsh has vowed to keep the Fed independent and stated Trump never asked him to commit to any particular interest rate decision. However the question of whether he stays truly independent under political pressure remains the key risk to watch.
3. Iran Ceasefire and Hormuz Reopening
The Strait of Hormuz closure is currently forcing oil buyers to seek alternative routes and alternative payment systems. Every week it stays closed, more yuan oil infrastructure gets built and becomes the default. Even if a ceasefire brings Hormuz back online, the critical question is whether yuan-denominated transit pricing persists. If it does, that is a structural shift that does not reverse.
4. US Deficit Trajectory and Debt Ceiling
Watch the Congressional Budget Office’s deficit projections closely. If the annual US deficit remains above $1.8 trillion with no credible consolidation plan, the Treasury issuance spiral accelerates. A US credit rating downgrade beyond Moody’s 2025 action would be a major signal to markets that the fiscal situation has moved from “concerning” to “systemic.”
5. Central Bank Gold Purchases, World Gold Council Quarterly Reports
The World Gold Council publishes quarterly gold demand data. Watch whether annual central bank purchases remain elevated, specifically whether Saudi Arabia and the UAE begin meaningful gold accumulation (they currently hold very little relative to their reserve size), and whether China resumes publicly reporting its purchases after going quiet.
The numbers to watch: if central bank gold purchases remain above 800 tonnes annually, that is the baseline signalling structural de-dollarisation. If they surprise to the upside again, as they did in 2022, 2023, and 2024, gold has further room to run. (PSSSSSSSSST, I track key economic indicators in real time in my dashboard - Macroeconomic Dashboard. Gold central bank purchase data is coming soon. Watch this space.)
Final Thought
The petrodollar system was built on a simple deal: the world uses dollars to buy oil, and in return, America guarantees global financial stability. That deal is under more strain than at any point in the past 50 years. The Russia reserve freeze, the US debt trajectory, the Iran war’s impact on oil payment rails, and the quiet but relentless accumulation of gold by central banks, these are not separate stories. They are chapters of the same story.
Gold is not a trade. In this environment, it is insurance. And right now, the premium for that insurance is still reasonable relative to what the risks actually look like.
If you have read this far, you already think differently about money than most people around you. The petrodollar story, the gold accumulation, the Fed independence question. These are not things that resolve in a week. They are slow-moving structural shifts that reward the people paying attention.
Two things I use to stay on top of it all:
The Daily Investment Brief — a free daily email that distils the most important market news into 5 minutes and how the market events may affect your portfolio
The Macroeconomic Dashboard — a free real-time tool I built to track the macro regime and key economic indicators in one place. I will be adding central bank gold purchase data soon, so you can watch this thesis play out in the numbers directly.
I am not a financial advisor. I am just someone who reads obsessively, looks for mispricings, and shares what I find. If that sounds useful — feel free to join!