The Petrodollar is Cracking, and Gold is the Beneficiary

For fifty years, the global financial system has rested on a simple arrangement: oil is priced in US dollars, and those dollars flow back into US Treasuries. It is known as the petrodollar system, and it has underpinned American economic dominance since the 1970s.

That system is now under more pressure than at any point in its history, and gold is responding.

What’s Happening to the Petrodollar?

The short answer is that the world is building alternatives.

Saudi Arabia, the cornerstone of the petrodollar arrangement, has begun accepting non-dollar currencies for oil sales. China has signed long-term oil contracts with Russia, Iran and Gulf states denominated in yuan. The petroyuan is now actively used by Russia, Iran, Venezuela, Saudi Arabia, the UAE and Egypt.

Meanwhile, BRICS has moved from rhetoric to infrastructure. The bloc, which now represents nearly 48% of the global population, has launched BRICS Pay, a digital payment system connecting Russia’s SPFS, China’s CIPS and India’s UPI. Intra-bloc dollar usage has dropped by roughly two-thirds. A new gold-backed settlement unit, backed 40% by physical gold and 60% by member currencies, is now operational.

Putin recently stated that BRICS nations now conduct approximately 90% of intra-bloc settlements using national currencies. Whether that figure is taken at face value or not, the direction is clear.

Oil, Iran and the Strait of Hormuz

The geopolitical backdrop has added fuel to the fire.

On February 28, the US and Israel launched joint airstrikes on Iran, killing Supreme Leader Khamenei. Iran retaliated with missile and drone attacks on US bases, Israeli territory and Gulf states. The conflict escalated into Lebanon, with Hezbollah launching strikes on Israel and Israeli forces hitting Beirut.

The immediate economic pressure point has been the Strait of Hormuz, the narrow waterway that carries roughly 20% of the world’s daily oil supply. Insurance-driven shutdowns have reduced tanker traffic to near-zero. Approximately 140 million barrels of oil from Saudi Arabia, the UAE, Iraq and Kuwait are currently suspended.

Oil has responded accordingly. Brent crude surged from around US$78 to more than US$117 per barrel, the highest since Russia’s invasion of Ukraine in 2022. US petrol prices jumped from US$3.00 to US$3.45 per gallon within days. Analysts warn oil could hit US$150 if the strait remains closed through March.

Higher oil prices feed directly into inflation, and inflation has long been one of gold’s strongest supports.

The Dollar Is Weakening

The US Dollar Index (DXY) has fallen to 98.87, down nearly 5% over the past twelve months. It briefly dipped below 97, a four-year low. Analysts project the index will trade in the 97 to 100 range through the rest of 2026.

The reasons are structural, not temporary: Fed rate cuts, rising fiscal stress and a global shift away from dollar-denominated reserves. When the dollar weakens, gold, which is priced globally in USD, becomes cheaper for foreign buyers, increasing demand.

Central Banks Are Buying Gold at Record Prices

Perhaps the clearest signal is what central banks are doing with their reserves.

In 2025, central banks purchased 863 tonnes of gold. In 2024, the figure was more than 1,000 tonnes. In 2023, it was another 1,000-plus tonnes. This is not a blip. It is a multi-year structural shift.

The World Gold Council reports that 95% of central banks, the highest share ever recorded, expect gold reserves to grow in the next twelve months. Forty-three per cent of governments are actively planning to increase holdings.

Poland led the way in 2025 with 102 tonnes purchased, with Governor Glapinski explicitly citing “national security” as the reason. China’s central bank has been buying for more than 15 consecutive months, pushing total holdings above 2,300 tonnes. Turkey, the Czech Republic and Kazakhstan are also consistent buyers.

These institutions are buying at US$5,000-plus per ounce. They are not speculating on short-term gains. They are repositioning for a world in which the dollar is no longer the unquestioned reserve currency, and gold is the neutral alternative.

Gold’s Response

Gold hit an all-time high of US$5,589 per ounce on January 28 this year. It has gained approximately 22% year to date. Silver reached US$96 per ounce in the latest surge.

The Iran war pushed gold from around US$5,100 to US$5,400 within days. Analysts at J.P. Morgan and others are forecasting US$5,500 to US$6,000 if hostilities intensify.

But this is not just a crisis trade. The structural forces of de-dollarisation, central bank accumulation, petrodollar erosion and dollar weakness were driving gold higher long before the first missile was launched. Geopolitics has accelerated the trend, not created it.

What Does This Mean?

BusinessKorea put it well: “The phenomenon of skyrocketing gold prices and the relative decline in dollar value may be a signal flare of global monetary order restructuring.”

We are watching the early stages of a fundamental shift in how the world stores and transfers value. The petrodollar system that defined the last half-century is being actively replaced, not by one alternative, but by several, with gold sitting at the centre of nearly all of them.

The BRICS settlement unit is 40% gold-backed. Central banks are accumulating at record levels. Nations are diversifying out of dollar reserves and into physical gold. The world’s most important oil chokepoint is closed, and the safe-haven trade is in full force.

Gold is not just benefiting from uncertainty. It is being structurally repositioned as a foundation of what comes next.

This article is for informational purposes only and does not constitute financial advice. Ainslie Bullion is one of Australia’s leading precious metals dealers, offering gold, silver and crypto services from Brisbane, the Gold Coast and Melbourne.