Category: Precious Metals

The custodians of trillions of dollars of global central bank reserves are eyeing a move away from the greenback into gold, the euro and China’s yuan as the splintering of world trade and geopolitical upheaval spark a rethink of financial flows.

According to a report by the Official Monetary and Financial Institutions Forum (OMFIF) due to be published later on Tuesday, one in three central banks managing a combined $5 trillion plan to increase exposure to gold over the next one-to-two years after stripping out those planning to decrease, the highest in at least five years.

The survey of 75 central banks — carried out between March and May — gives a first snapshot of the repercussions of US President Donald Trump’s April 2 Liberation Day tariffs that sparked market turmoil and a slide in the safe-haven dollar and US Treasuries.

Gold, which central banks have already been adding at a record pace, was seen benefiting even further longer term, with a net 40% of central banks planning to increase gold holdings over the next decade.

“After years of record-high central bank gold purchases, reserve managers are doubling down on the precious metal,” OMFIF said.

The dollar, the most popular currency in last year’s survey, fell to seventh place this year, OMFIF said, with 70% of those surveyed saying the US political environment was discouraging them from investing in the dollar — more than twice the share a year ago.

In currencies, the euro and yuan stand to benefit the most from a diversification away from the dollar.

A net 16% of central banks surveyed by OMFIF said they plan to increase euro holdings over the next 12 to 24 months, making it the most in-demand currency, up from 7% a year ago, followed by the yuan.

But over the next decade, the yuan is more favoured, with a net 30% of central banks expecting to increase holdings and its share of global reserves seen tripling to 6%.

Separately, three sources who deal directly with reserve managers, told Reuters they saw the euro as now having the potential to recapture the share of currency reserves lost following the 2011 euro debt crisis by the end of this decade. They cited more positive sentiment among reserve managers towards the euro following Liberation Day.

That would mean a recovery to a roughly 25% share of currency reserves, from around 20% currently, representing a key moment in the bloc’s recovery from the debt crisis that threatened the euro’s existence.

Max Castelli, head of global sovereign markets strategy and advice at UBS Asset Management, told Reuters that reserve managers made many calls after Liberation Day to ask if the dollar’s safe-haven status was at risk.

“As far as I remember, this question has never been asked before, not even after the great financial crisis in 2008.”

The average expectation for the dollar’s share of global FX reserves in 2035 was 52%, the OMFIF survey showed, remaining the No.1 reserve currency but seen down from the current 58%.

Euro’s moment?

OMFIF survey respondents expected the euro to reach about a 22% share of global reserves in 10 years’ time.

“The euro’s share of global reserves will almost surely rise over the next few years, not so much because Europe is viewed so much more favorably, but because the dollar’s status is diminished,” said Kenneth Rogoff, Harvard professor and former IMF chief economist, told Reuters by e-mail ahead of OMFIF’s publication.

But Europe could attract a higher share of reserves sooner if the bloc is able to boost its pile of bonds that are currently dwarfed by the $29 trillion US Treasury market, while integrating its capital markets, the sources that speak directly to reserve managers, told Reuters.

ECB President Christine Lagarde has also urged action to bolster the euro as a viable dollar alternative.

The euro is the “only real alternative currency for the moment to make a significant change in the level of reserves,” said Bernard Altschuler, global head of central bank coverage at HSBC, adding he saw it as “realistic” for the euro to reach a 25% share of global reserves in 2-3 years if those issues are addressed.

The European Union is the world’s largest trading bloc. Its economy is far bigger than the dollar’s other rivals. Capital controls limit the appeal of the yuan.

Momentum for change has gathered pace, with Europe signalling willingness to curb its dependence on the US by boosting defence spending, including through more joint EU borrowing. Germany is ramping up spending, while the EU is trying to revive efforts to integrate its capital markets.

Public pension and sovereign wealth funds, also surveyed by OMFIF, saw Germany as the most attractive developed market.

UBS Asset Management’s Castelli said he was receiving many more questions about the euro, estimating the euro could recover to a 25% share of reserves by the end of the 2020s.

At the most bullish end, Francesco Papadia, who managed the ECB’s market operations during the debt crisis, estimated the euro could recover to 25% in as soon as two years.

Reserve managers he holds discussions with were more willing to look at the euro than before, Papadia, senior fellow at think-tank Bruegel, said.

Zhou Xiaochuan, China’s central bank chief from 2002 to 2018, agreed the euro’s role as a reserve currency could grow. However, there’s “homework to do,” he told Reuters on the sidelines of a recent conference.

(By Yoruk Bahceli, Dhara Ranasinghe, Jiaxing Li, Leika Kihara and Emily Green; Editing by Elisa Martinuzzi and Anna Driver)

Source: https://www.mining.com/web/central-banks-eye-gold-euro-and-yuan-as-dollar-dominance-wanes/

Central banks eye gold, euro and yuan as dollar dominance wanes

Central banks eye gold, euro and yuan as dollar dominance wanes

Gold has firmly reasserted itself as a strategic anchor in the global financial system, now ranking second only to the US dollar—and ahead of the euro—in terms of official reserve holdings measured at market value. This structural shift, outlined in the European Central Bank’s latest report on the international role of the euro, underscores how price dynamics, central bank behavior, and geopolitical realignment have collectively elevated gold’s monetary relevance.

From Inflation Hedge to Geopolitical Barometer

In 2024, gold prices surged by 30%, followed by another 30% year-to-date in 2025, briefly reaching an all-time nominal high of $3,500 per troy ounce in April. This sharp rally signals more than just a technical or inflation-driven cycle—it reflects a broader revaluation of gold’s role amid rising global uncertainty.

One of the more recent illustrations of this shift came with the spike in gold futures following a military flare-up between Israel and Iran, confirming gold’s renewed function as a geopolitical hedge.

While traditionally influenced by real interest rates and inflation expectations, gold has increasingly decoupled from such monetary drivers. Between 2008 and early 2022, the negative correlation between gold prices and real yields made the metal a reliable hedge in low-rate or high-inflation environments. Yet since Russia’s invasion of Ukraine, this pattern has weakened significantly. Despite rising or stable real yields, gold has continued to climb, suggesting that its valuation is being driven by forces beyond rate expectations.

Non-monetary factors have now taken center stage—especially geopolitical risk, reserve diversification, and sanctions avoidance. This transformation reflects a recalibration by central banks and investors alike, who are positioning gold not only as an inflation buffer, but also as a politically neutral store of value. In an era of increasing geopolitical fragmentation and weaponized finance, gold’s lack of counterparty risk has made it uniquely attractive.

The implications are far-reaching. If gold is no longer primarily priced off opportunity cost or real yields, then conventional valuation models understate its defensive strength. Instead, gold is behaving more like a global insurance asset, valued for its sovereignty-proof liquidity and its historical reliability in times of crisis.

Key Role of Central Banks

The most significant force behind gold’s recent ascent is central banks’ purchases. In 2024, central banks bought over 1,000 tonnes of gold—double the prior decade’s average—pushing global official holdings to 36,000 tonnes, near the 1965 Bretton Woods peak of 38,000 tonnes. This unprecedented accumulation lifted global official holdings to 36,000 tonnes, approaching the historic peak of 38,000 tonnes reached in 1965 during the Bretton Woods era.

At current market valuations, these holdings have pushed gold’s share in total global foreign exchange reserves to 20%, overtaking the euro’s 16% for the first time according to the ECB’s recent findings. This milestone is not the result of speculative demand, but of deliberate, sustained reallocation by central banks—signaling a strategic repricing of gold as a monetary reserve asset.

Notably, this wave of buying has been highly concentrated in emerging markets, particularly China, Turkey, and India, which together have added more than 600 tonnes since late 2021. Their purchases reflect a broader movement among non-Western economies to de-risk from reserve currencies tied to Western financial systems and legal jurisdictions.

From Diversification to De-Risking

Survey data from the World Gold Council conducted in early 2024 helps unpack the motives behind this buying. Diversification remains the primary rationale, cited by two-thirds of central banks. However, geopolitical risk—specifically the desire to insulate reserves from sanctions or political pressure—was cited by 40% of respondents. A substantial number of central banks also pointed to gold’s role as a long-term hedge against inflation, default risk, and systemic disruption.

These motivations are particularly strong in emerging and developing economies, where one in four central banks explicitly linked their gold strategy to concerns over sanctions or anticipated changes in the global monetary order. In fact, half of the top ten annual jumps in gold’s reserve share since 1999 followed sanctions against the countries involved. This underscores gold’s appeal as an unencumbered asset, free from the risks of seizure or political interference.

Taken together, these trends mark a departure from reserve management as a purely financial optimization exercise. Today, for many sovereign actors, gold serves as a hedge not just against inflation or currency depreciation, but against the rules of the existing system itself.

Conclusion: Gold’s Strategic Repricing

The ECB’s findings reflect a broader paradigm shift in the logic of reserve accumulation. Gold has not only appreciated in nominal terms—it has been reconceptualized as a core asset for monetary sovereignty and geopolitical insulation.

Its elevation to second place in global reserves is more than symbolic. It signals a growing distrust in traditional reserve currencies and a collective desire among central banks—particularly outside the Western alliance—to build resilience against political and financial coercion.

In this new global context, gold is no longer a passive relic of the past. It is increasingly being recognized as an active pillar of reserve strategy, with implications that stretch far beyond price charts and interest rate models.

This article was originally posted on FX Empire