In a significant shift in global reserve asset allocations, gold has overtaken the euro to become the second-largest reserve asset, according to the European Central Bank’s (ECB) annual monetary assessment report, released Wednesday. This marks the first time in two decades that gold has achieved this status, trailing only the US dollar.
The report reveals that gold now accounts for approximately 20% of global official reserves by the end of 2024, surpassing the euro’s 16% share. Despite the US dollar’s continued dominance with a 46% stake, its influence is steadily waning as central banks increasingly turn to gold. The report highlights an unprecedented surge in gold purchases, with central banks worldwide acquiring more than 1,000 tonnes for the third consecutive year in 2024. The total official gold reserves have now reached 36,000 tonnes, nearing the historical peak of 38,000 tonnes seen during the Bretton Woods era.
Record-Breaking Purchases Fuel Gold’s Rise
Central bank gold purchases in 2024 reached record-breaking levels, driven by rising gold prices and a growing demand for safer, more diversified assets. Data from the World Gold Council indicates that key buyers such as Poland, Turkey, India, and China were responsible for about a quarter of global gold purchases last year.
Gold’s price surge has been a major factor behind its rise as a reserve asset. In 2024, the price of gold increased by nearly 30%, and it continued its upward trajectory this year, reaching a record high of USD 3,500 per ounce in April.
Geopolitical Tensions Fuel De-Dollarization Trend
The ECB attributes the shift toward gold to escalating geopolitical risks, particularly following the Russia-Ukraine conflict, which began in 2022. This event triggered a surge in demand for gold as a hedge against both economic instability and the potential threat of sanctions. The ECB’s survey reveals that two-thirds of central banks view gold as a means of diversifying their reserves, while 60% cite it as a safeguard against geopolitical risks.
The report further emphasizes that countries in close geopolitical proximity to China and Russia have notably increased their gold holdings since the fourth quarter of 2021, signaling a growing trend of de-dollarization in response to global tensions. The long-standing inverse relationship between gold prices and real yields, which had historically acted as a balancing mechanism, was disrupted in 2022, as central banks accelerated gold purchases to counteract the risks posed by the shifting geopolitical landscape.
Future Outlook: Geopolitics and Gold Holdings
Looking ahead, the ECB predicts that geopolitical uncertainty will continue to play a pivotal role in shaping the future of gold as a reserve asset. A staggering 80% of official reserve managers surveyed by the ECB believe geopolitical factors will significantly influence gold allocation decisions over the next five to ten years, signaling that the de-dollarization trend is likely to persist.
As central banks diversify their portfolios amid an increasingly unstable global environment, gold’s role as a safe haven asset is poised to strengthen, solidifying its position as a cornerstone of international reserve strategies in the years to come.
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