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Gold has surpassed the euro, becoming the second most significant reserve asset for central banks, fueled by unprecedented purchases and rising prices, according to the European Central Bank.
Last year, gold made up 20 percent of global official reserves, beating the euro’s share of 16 percent, and is only behind the US dollar which accounted for 46 percent, as revealed in a report from the ECB released on Wednesday.
The ECB stated, “Central banks have been acquiring gold at an unprecedented rate,” noting that for three consecutive years, they have bought over 1,000 tonnes of gold in 2024, which represents a fifth of the global annual production and is double the annual average from the decade of the 2010s.
Gold reserves held by central banks worldwide are nearing the historic highs last seen during the Bretton Woods period. Up until 1971, global currencies were pegged to the US dollar, which was convertible to gold at a fixed rate.
According to the latest ECB data, central bank gold reserves, which peaked at 38,000 tonnes in the mid-1960s, have climbed back to 36,000 tonnes in 2024. “Central banks around the globe now possess almost as much gold as they did in 1965,” the ECB report highlighted.
Significant buyers in the last year included India, China, Turkey, and Poland, as reported by the World Gold Council.
A significant factor behind the increase in gold’s share of global foreign reserves was a 30 percent rise in its price last year. Since January, gold prices have surged another 27 percent, reaching an all-time high of $3,500 per troy ounce.
The ECB stated, “This accumulation, along with elevated prices, positioned gold as the second-largest global reserve asset at market value in 2024, following the US dollar.”
Although gold doesn’t generate interest and incurs storage costs, it is regarded as the ultimate safe-haven asset by investors worldwide due to its high liquidity, lack of counterparty risk, and immunity from sanctions.
In recent years, central banks have aimed to reduce their reliance on the US dollar, spurred by apprehensions over geopolitical tensions and US debt levels. The trend of moving away from the dollar, especially among developing nations, picked up speed after the Russian invasion of Ukraine, which restricted Moscow’s access to international financial markets.
The ECB’s report noted, “Gold demand for monetary reserves significantly spiked following Russia’s invasion of Ukraine in 2022 and has remained robust,” indicating that gold purchases are perceived as a safeguard against sanctions like frozen financial assets.
“In five of the ten largest annual increases in the proportion of gold in foreign reserves since 1999, the countries involved faced sanctions in that year or the preceding one,” the central bank’s analysis revealed, highlighting that “nations geopolitically aligned with China and Russia” boosted their gold holdings more than others in the past three years.
A survey of 57 central banks that held gold last year showed that concerns about sanctions, potential shifts in the global financial landscape, and the aim to lessen dependency on the US dollar were key factors influencing emerging and developing economies.
Additionally, while historical patterns indicated that gold became cheaper when real yields of other assets rose, this long-held relationship has changed since early 2022, as investors have increasingly viewed gold as a hedge against political volatility rather than inflation.
The ECB observed that gold supply has increased during periods of high prices in recent decades: “If past trends continue, further growth in official gold reserves could also drive up global gold supply.”
