Nothing Gold Can Stay 

Gold just ended a banner year. Its price rose 27 percent in 2024, closing at $2,617 per ounce. Only the Nasdaq Composite index, fueled by reliably strong performances from the so-called Magnificent Seven tech giants, did better, at 31 percent. (The S&P 500 improved 25 percent.) This was gold’s best showing since 2010, when prices increased 29 percent, though over the last twenty-five years gains have been nearly unrelenting. According to analysts at JPMorgan, Goldman Sachs, and Citigroup, the rally won’t end here. They project gold to reach a historic $3,000 per troy ounce in 2025.

All this has baffled market observers. Unlike other investments, gold does not yield interest but rather only accrues price-related gains. This is why investors hold the metal when other choices stand to deliver little profit, like in a low-interest environment. But rates have been anything but low in recent years. So what is driving these increases?

Part of the answer is that central banks across the world have been on a buying spree. According to The Economist, gold now comprises 11 percent of their reserves, up from 6 percent in 2008. Central banks generally hold most of their reserves in currencies, especially dollars. But the pandemic, Russia’s invasion of Ukraine, and the spiraling conflicts in the Middle East have pushed some bankers to search for greater stability and diversification. The prospect—and now reality—of a second Trump presidency and what it portends for US trade relations with China, Canada, and Mexico has only added to the overall sense of uncertainty.

“Money is gold, nothing else,” J. P. Morgan famously said in 1912. At the time, the US dollar and other currencies were backed by gold reserves: that is, banks were technically obliged to convert paper notes into gold if the holder demanded it. Whereas governments could print currency to increase supply, potentially eroding its value, gold reserves are limited. That makes it a good alternative when markets are turbulent.

The present demand for gold is not apolitical, however. In the last five years central banks in Russia, China, India, and Turkey—rather than Europe—have been the main buyers. These countries have not signed on to Western sanctions against regimes like those in Venezuela, Iran, Myanmar, and Russia itself. By bolstering their gold reserves, they are preserving the option of circumventing the dollar-based financial system in case of conflict and protecting their own assets against potential Western freezes and confiscations.¹

Private buyers do not, by themselves, move the commodity’s price needle as severely as central banks during periods of forecasted instability might—but they too have contributed to gold’s upswing. Family offices in the US and wealthy Asian buyers have turned away from assets denominated in Western and Asian currencies and moved to gold in search of an inflation hedge. For those of lesser means, Costco has stepped into the breach: the outlet known for its warehouse-style stores and $1.50 hotdogs began selling gold bars some two years ago. Purchase is limited to five bars per membership—Costco has limited reserves—but restocks typically disappear in a matter of hours. 

It is easy to forget that behind the abstractions of price movements and market swings lies a material that has to be mined from the ground. Beyond the trading rooms, Bloomberg terminals, and the high-security storage vaults of the superrich, gold quickly loses its shine. According to the United Nations, 20 percent of the world’s gold supply is extracted not in big industrial mining enterprises but in “artisanal” settings, which are small-scale, informal, and often illegal. 

If done right, artisanal mining can help communities in poorer countries build livelihoods beyond subsistence farming.² But in reality the working conditions there are generally horrendous. Child labor is rampant. Land is often forcibly seized from indigenous groups, as in the Brazilian Amazon and in neighboring Colombia. Shoddy smelting techniques pollute the environment. 

Artisanal mining moreover tends to be entangled in conflict. In the Democratic Republic of the Congo, gold and other minerals—including tantalum and tungsten, which are widely used in electronic devices—are helping fund the ongoing civil war, according to the United States Government of Accountability Office. In Peru—Latin America’s largest gold supplier and second-largest producer of cocaine—the illegal gold trade is twice as big as drug trafficking. In Venezuela, where the Bolívar is nearly worthless, the Maduro regime converts illegally mined gold into internationally accepted currencies or uses it directly to pay for imports (not to mention bribe the military). 

The price increases of the past decades have been linked to the growth of such dirty gold, which is easily laundered into legitimate monetary and commercial supplies. This is in part because of gold’s chemical makeup: the refining process removes precisely the impurities that could reveal its geological fingerprint. But the trade has also been politically and legally organized to facilitate illegal mining: a number of tax havens and secrecy jurisdictions, where oversight is lax and authorities turn a blind eye, are the commodity’s main points of entry to the mainstream economy. 

Today the most important transit hub for dirty gold is Dubai, the tax and regulatory paradise in the United Arab Emirates (UAE). Gold traders in the Emirates are known to wave through incoming shipments with questionable origins, and they’re quick to furnish gold with a new identity in one of roughly ten operational refineries. From there the metal usually travels for recertification to Switzerland, another tax haven, where between 60 and 70 percent of the world’s gold is processed. Illegal miners also set up shell companies with obscure ownership arrangements in places like the British Virgin Islands, the Cayman Islands, and Panama to launder profits by commingling dirty mining revenues with legitimate business earnings. Gold in this respect is both a vehicle for disguising illicit financial flows and a product of illicit activity itself. 

London has historically been the world’s most important gold trading hub. At the height of the classical gold standard in the second half of the nineteenth century—during which major European economies pegged their currencies to gold reserves—Britain was the world’s foremost economic power, and the Bank of England dominanted international monetary policy. (It helped that several of the world’s known gold reserves were situated in the British Empire, above all in South Africa and Australia.) In 1919 a group of banks and bullion houses, led by M. N. Rothschild, developed a procedure for determining the daily gold price—it was set at 10:30 AM in Rothschild’s London offices—which became the global benchmark. 

Though New York beat out the British capital as the world’s leading financial center after World War II, London remains central to all things gold. The “daily fix” no longer happens at in-person meetings at Rothschild’s but electronically, under the aegis of the London Bullion Market Association, and now twice a day, to accommodate American markets. Gold, too, retained a place in the world economy. In 1923 John Maynard Keynes had called the gold standard a “barbarous relic,” but when delegates gathered in New Hampshire for the Bretton Woods conference twenty years later, they upheld a role for gold. Their fixed exchange rate regime pegged currencies to the dollar, which in turn would be convertible into gold at a rate of $35 per troy ounce. 

As a result, for much of the period between the late 1940s and the early 1970s, several countries prohibited private companies and individuals from buying and selling gold above the official price. Government officials feared that the private market would remove gold from circulation, potentially limiting how much paper currency they could issue and thereby constraining national growth. In the US, private citizens were banned from owning the purest, monetary-grade gold in the form of coins or bars, except for artistic and professional purposes (dentistry, jewelry, and so forth). When the gold market in London reopened after the war, it did so with restrictions on price and distribution.

Those intent on making a profit off gold, however, had moved on. While London’s market was inactive, banking hubs across Europe, Asia, and North Africa sprung to life. These diverse cities had one thing in common: they were all part of tax havens and secrecy jurisdictions, and thus skirted the price and ownership caps recommended under Bretton Woods. More to the point, their anonymity provisions shielded owners and traders from any scrutiny at all.

Zurich is a case in point. During the war the Swiss central bank bought between 1.6 and 1.7 billion Swiss francs of gold from the Nazi Reichsbank, furnishing Germany with currency desperately needed for the war effort. Some of the gold had been looted from the central banks of occupied countries, as well as plundered from Holocaust victims, including teeth, jewelry, and coins. Switzerland’s association with tainted gold continued in the 1970s and 1980s. When South Africa was placed under UN sanctions, Swiss assayers imported, refined, and reexported about 80 percent of the country’s supplies on the world market. In 1981 Swiss authorities ceased publishing gold trade statistics, surely for fear of exposing how much it imported from the pariah regime. Further east, the gold trade took off in Hong Kong—where Chinese capital had fled as the communists seemed poised to take power in the mainland—as part of a lively and officially tolerated smuggling economy between the British colony and Macau, the Portuguese territory some forty miles across the Pearl River Delta; in Beirut, thanks in part to a 1956 bank secrecy law modeled on Switzerland’s; and in Singapore, another tax haven. 

Enter Dubai. As the historian Nisha Mathew has shown, in the 1960s the city-state’s ruler, Sheikh Rashid bin Saeed Al Maktoum, began turning a blind eye to all kinds of illicit trade.³ Soon airplanes were bringing in gold from London, Switzerland, and Beirut. Smugglers neatly arranged 200 or 250 ten-tola bars, each the size of a canapé, in wood fiber boxes, and sometimes hid them in custom-made vests underneath their clothing. For centuries fishermen and merchants had crossed the Indian Ocean on small vessels known as dhows. Now smugglers used them to move gold into India via Mumbai, to satisfy the traditionally high demand for the metal on the subcontinent.

Dubai has never sat on the kind of oil largesse that its neighbors like Saudi Arabia enjoyed. Black gold was first discovered offshore there in 1966, but production is estimated to have peaked in 1991, and observers project it will run dry within the next fifteen or so years. That is probably why the Emirati rulers pivoted away from oil and experimented with a rather laissez-faire attitude towards regulation and oversight. From the early 2000s they began inexorably loosening financial and tax regulations. Today there are some forty-five special legal “zones” in the Emirates, and twenty-six within Dubai itself. One such haven-within-a-haven is the Dubai Multi Commodities Centre (DMCC), which exempts foreign investors and commodity companies from personal and corporate income taxes for fifty years and places no restrictions on remitting profits.

Nicknamed the “City of Gold,” Dubai is the global hotspot for laundering gold mined in Africa. Numbers are not always easy to come by, but according to research by the NGO Swissaid, in 2022 the UAE imported roughly 405 tons of smuggled gold from the continent. The conditions for smuggling, overinvoicing, and other practices tied to laundering are ideal. A trader will typically carry packages of two to twenty kilograms of conflict gold in their hand luggage. At Dubai International Airport they will likely have an easy time getting around customs inspections, which are nominally required but mostly ignored or circumvented. Perhaps they will acquire a false certificate of origin for their goods; these circulate widely, usually for South Africa. Once out of the airport, they will often head directly to the Dubai Gold Souk, a market for jewelry that hosts more than three hundred retailers, where cash payments—a red flag for money laundering—are common.⁴ The metal is then locally refined, obscuring its origins, after which it can be exported legitimately.

Most likely, it will go to Switzerland. In 2019 the UAE exported 149 tons of gold worth 6.8 billion Swiss francs to the country, making it the largest exporter in terms of value. (Switzerland has five of the world’s largest gold refineries; Swiss-stamped bars are trusted the world over.) A 2018 report by the Swiss government highlighted the risks of tainted gold entering the country but stopped short of imposing stricter due diligence laws and sourcing controls, relying on self-regulation—such as a voluntary certification program—instead. But a range of NGOs, such as Global Witness, have found that the results have so far fallen short: implementation is often spotty and only periodically audited.

All major Swiss refineries are included on the so-called London Good Delivery List, a form of accreditation handed out by the London Bullion Market Association (LBMA), which represents the global over-the-counter gold and silver market. The list dates back to 1750, when the Bank of England compiled a roster of “acceptable melters and assayers.” It was originally meant to address concerns about quality and purity; now it also ostensibly attests that gold has been responsibly sourced. But the practice does not always meet these lofty goals. 

In 2022 a group of Tanzanians brought a case against the LBMA in a British court for certifying gold of tainted origin. The plaintiffs represent the families of two young men killed in separate incidents in 2019 by police protecting the North Mara mine. (NGOs have documented numerous similar cases of state and private security violence near the mine complex since 2019, when Canada-based Barrick’s, the world’s second-largest gold mining company, acquired operational control over it.) The lawsuit will be an important litmus test for determining whether certification bodies like the LBMA can be held accountable for their failure to adhere to due diligence and other standards. The UK, as opposed to Switzerland, is a jurisdiction where plaintiffs can bring such cases; in 2020 Swiss citizens narrowly rejected a referendum that proposed making local companies liable for human rights and environmental violations around the world.

In 2020 the LBMA threatened to block twelve countries including the UAE from trading gold on international markets unless they stiffened their regulatory standards. Two years later the Financial Action Task Force (FATF), the global illicit financial flows watchdog, placed the Emirates on its grey list, highlighting the prevalence of dirty money there. Likely in response to these and other criticisms, Emirati authorities developed new rules for the gold sector, which came into effect in January 2023. (They implemented mandatory due diligence protocols, including know-your-customer checks and supply chain transparency requirements, as well as increased fines and penalties for violations.) FATF removed the UAE from the grey list in 2024. That August the country temporarily suspended thirty-two gold refineries in a money laundering probe; shortly thereafter they announced a national strategy to combat the practice. It remains to be seen whether these measures amount to more than window dressing. In November 2023 Alain Goetz—a Belgian citizen sanctioned by the US and the EU for dealing in illicit gold from the DRC—spoke at the eleventh annual precious metals conference in Dubai.

The laundering of conflict gold at record prices illustrates that tax havens do more damage than depriving countries of revenue and allowing the rich to get even richer. So far, various forms of self-regulation and voluntary standards have failed to adequately mitigate that damage. International pressure might be one way forward, but if Switzerland’s decades-long noncooperation in all matters pertaining to bank secrecy is any indication, those tactics will be slow to yield results. 

The United Arab Emirates, meanwhile, is a crucial Western security partner. Especially in this volatile moment, the US and its allies will be careful not to rock the boat. In 2020 the International Consortium of Investigative Journalists revealed that US Treasury officials quietly dropped a years-long investigation into Kaloti Jewellery Group, a Dubai-based gold trader and refiner, for fear of angering UAE authorities. For now it seems that the rise in gold prices that experts predict for 2025 will mostly line the pockets of traders in dirty gold, with all the attendant human cost.