Gold in the age of sanctions: How the Russia-Ukraine war reshaped the global bullion market

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In the years since the Russian invasion of Ukraine in February 2022, global gold prices have moved beyond the realm of classic inflation hedges or periodic safe-haven blips. The rally in bullion reflects something far more profound: a crisis of confidence in the post-Cold War financial order. When Russia launched its full-scale invasion, the United States and its allies responded not only with military and economic sanctions but also unprecedented financial measures – freezing a substantial portion of the Russian central bank’s assets held abroad and excluding large Russian banks from key international payment systems. This was not merely a political act; it was a dramatic demonstration that sovereign reserves and foreign currency wealth are subject to geopolitical authority.

For emerging markets, commodity exporters and reserve managers around the world, the message was clear: currency reserves are only as secure as the political relationships that underpin them. In this context, gold, a non-sovereign, physical asset with no counterparty risk, regained strategic importance. It signified not just an investment preference but a recalibration of what constitutes monetary insurance in an era of sanctions, fragmented finance and geopolitical contestation.

The surprising dynamics of the post-2022 gold rally

Historically, gold has rallied during periods of economic stress, geopolitical conflict or monetary instability. But the post-2022 gold market has been unusual in both scale and drivers. Gold prices hit successive all-time highs, with spot prices exceeding 4,500 US dollars per ounce in 2024-25, and crossing 5,100 US dollars-mark recently amid macroeconomic uncertainty.

Underlying this price action is a structural shift in demand composition. Central banks, long passive holders of gold, have become net buyers at unprecedented levels. According to data compiled by the World Gold Council, central banks have purchased more than 1,000 metric tons of gold annually since 2022, more than doubling the pace of purchases seen in the decade prior.

The European Central Bank has even reported that gold has overtaken the euro to become the second-largest reserve asset globally. This sees it positioned behind only the US dollar itself, accounting for roughly 20 per cent of official holdings in 2024. A Reuters-reported survey of central banks finds that a strong majority now expect to increase gold reserves over the next five years while reducing dollar holdings, pointing to diversification motives and risk mitigation against future sanctions or dollar volatility.

But this official sector demand is only part of the story. Private and institutional investors have returned to gold as a “safe harbour” through exchange-traded funds (ETFs) and physical bullion, particularly in response to renewed geopolitical tensions and concerns about future financial disruptions. ETF holdings of physical gold have climbed sharply, and global gold demand reached quarterly records in 2025 on strong investment inflows. The banking crisis in Europe in 2023, persistent inflation concerns, and shifts in US interest rate expectations have only added to this momentum.

Sanctions, financial architecture and the appeal of bullion

Why did a war in Eastern Europe, far from the primary financial centres of London, New York or Tokyo, have such an outsized effect on global bullion markets? The answer lies in the global financial architecture itself.

The freezing of nearly 300 billion US dollars in Russian reserves in western jurisdictions was a watershed moment: it demonstrated that sovereign foreign exchange reserves are not sovereign in practice, but vulnerable to the legal jurisdictions where they are held. For many countries, this underscored the potential fragility of dollar-centric reserve accumulation. Various experts and scholars have noted that the sanction regime effectively weaponized the financial system, calling into question long-standing assumptions about reserve safety.

As a result, some emerging markets and developing economies have sought sanction-resistant assets and diversification outside the traditional corpus of US treasuries and euro-denominated bonds. Gold, as a tangible, globally recognized store of value, has been one of the primary beneficiaries of this rethinking. This trend intersects with broader geopolitical realignments, including the decoupling of certain financial channels, rising tensions in East Asia, and the search for alternatives to existing dollar and euro systems.

However, the gold rally since 2022 has not been linear nor risk-free. Prices have oscillated with monetary policy shifts and evolving geopolitical dynamics. At times, gold has retraced from near-historical peaks, as investors weigh the metal’s lack of yield against higher real interest rates or opportunities elsewhere.

Moreover, while geopolitical risk remains elevated, it does not always translate directly into bull market momentum. Academic research on asset prices and conflict suggests that gold often spikes at the onset of wars or intense uncertainty, but the duration and magnitude of rallies depend on the conflict’s global economic footprint and transmission mechanisms.

Nevertheless, what distinguishes the post-2022 period from past crises is the consensus among monetary authorities and institutional investors that gold now performs a strategic role: not simply a cyclical investment asset. This shift has both political and economic roots.

Implications for Eastern Europe and beyond

For people in Eastern Europe, a region that sits at the geopolitical crossroads of Russia, the European Union, NATO and global energy networks, the resurgence of gold as a strategic asset carries specific resonance.

First, many countries in this region have been directly affected by the economic spillovers of the conflict: supply-chain disruptions, energy price volatility, and financial market swings. The reassessment of reserve mix and risk exposures has implications for national monetary strategy, sovereign debt management and currency stability.

Second, the region’s proximity to major geopolitical fault lines makes it especially sensitive to global risk sentiment. As gold becomes a barometer of political risk and financial insecurity, central banks in Eastern Europe and neighbouring markets may increasingly view bullion holdings as part of a broader resilience strategy.

Finally, the shift in global financial behaviour suggests that monetary diversification and crisis preparedness will be key themes in policymaking and economic discourse. Whether through gold, alternative reserve currencies, or regional financial arrangements, the impulse to reduce vulnerability to sanctions and unilateral financial actions is likely to grow.

Conclusion

The surge in gold prices and demand since the Russia-Ukraine war is not an isolated market phenomenon. It reflects a broader rebalancing of risk perception in the global financial system, where geopolitical authority, financial sanctions and the fragility of cross-border monetary instruments have raised fundamental questions about what constitutes reliable, liquid and secure wealth.

Gold’s renaissance, as witnessed through record central bank purchases, heightened investor demand and soaring prices, suggests that the logic of diversification and insurance now extends well beyond inflation hedging. In an era where sovereignty in finance is increasingly contested, gold’s allure lies not only in its scarcity but in its resilience against political and systemic risk.

Dr. Divya Malhotra is a senior fellow (visiting) with Centre for National Security Studies, Bangalore. She has been associated with India’s National Security Council’s Advisory Board and Middle East Institute New Delhi as a researcher.

commodities, gold, sanctions, trade