A mixture of geopolitical threat, financial uncertainty, and gold’s time-tested resilience pushed central banks to build up document stockpiles in 2024, vaulting bullion to historic highs in value and status.
In 2024, gold accounted for 20% of worldwide official reserves, up from round 16.5% in 2023, overtaking the euro, which dropped to 16%, in response to ECB information. The U.S. greenback stays the dominant reserve asset, holding regular at round 46%.
“Gold reserves held by central banks stand at ranges near these final seen within the Bretton Woods period,” the ECB report mentioned. This surge, paired with traditionally excessive costs, “made gold the second largest world reserve asset at market costs in 2024 – after the US greenback.”
A flight to security triggered by conflict
A turning level for the bullion got here with Russia’s full-scale invasion of Ukraine in early 2022. The geopolitical shock, coupled with surging inflation and rising rates of interest, spurred a flight to so-called protected haven property. Central banks started hoarding gold at a tempo unseen in many years, a pattern that has solely accelerated since.
In 2024, central banks accounted for greater than 20% of worldwide gold demand, a pointy leap from the ten% common seen through the 2010s. In the meantime, shopper demand, significantly for jewellery, waned in key markets like China, however was offset by rising investor demand. Mixed, funding and jewellery nonetheless made up 70% of worldwide gold consumption.Current value actions have been turbulent. Gold touched a sequence of document highs by way of 2024 and early 2025, although the rally has just lately cooled amid fast-changing U.S. tariff coverage and broader market volatility.On Thursday, gold costs edged as much as a one-week excessive, pushed by softer U.S. inflation information that fueled expectations of Federal Reserve charge cuts later this yr. Spot gold rose 0.2% to $3,360.29 an oz, as of 0838 GMT, after earlier touching its highest stage since June 5.
U.S. gold futures have been up 1.1% at $3,380.00 on Thursday. A 0.3% drop within the U.S. greenback index to a close to two-month low additionally supported bullion, making it cheaper for non-dollar consumers.
The geopolitical hedge
In accordance with the ECB report, central banks view gold primarily as a software for portfolio diversification, whereas additionally valuing it as a hedge in opposition to geopolitical dangers. A 2024 survey by the World Gold Council of almost 60 central banks recognized three foremost causes for his or her gold holdings: “(i) a long-term retailer of worth and an inflation hedge, (ii) (good) efficiency throughout instances of disaster, and (iii) an efficient portfolio diversifier.”
The survey additionally revealed that one in 4 central banks from rising and growing economies cited “issues about sanctions” or “the anticipation of adjustments within the worldwide financial system” as causes for reinforcing their gold publicity.
Notably, China, India, and Turkey, nations navigating complicated geopolitical alignments, have collectively added greater than 600 tonnes of gold to their reserves for the reason that finish of 2021. The ECB famous that “nations which can be geopolitically near China and Russia have seen extra marked will increase within the share of gold of their official international reserves for the reason that final quarter of 2021.”
Breaking the hyperlink with actual yields
Traditionally, gold costs have been negatively correlated with actual rates of interest, providing a hedge in opposition to inflation and low nominal yields. However the ECB discovered that this correlation “broke down after Russia’s full-scale invasion of Ukraine,” indicating that geopolitical elements now dominate gold value dynamics.
Supporting this, “current analysis signifies that imposing monetary sanctions is related to will increase within the share of central financial institution reserves held in gold.” In actual fact, in 5 of the ten largest annual will increase in gold reserve shares since 1999, the nations concerned had confronted sanctions in that yr or the one earlier than.
Provide response and the street forward
Regardless of tightness out there, the ECB famous that gold provide has traditionally confirmed elastic in response to rising demand, aided by growth in above-ground shares. “If historical past is any information, additional will increase within the official demand for gold reserves might also assist additional development in world gold provide,” the report mentioned.
Nonetheless, analysts warning that central banks could also be approaching their restrict. After three years of aggressive shopping for, some establishments could also be nearing their fill, with future purchases probably tapering until new geopolitical shocks rekindle demand.
For now, gold’s crown because the world’s second-largest reserve asset seems safe, the final word hedge, in an period the place uncertainty is the one fixed.
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(Disclaimer: Suggestions, strategies, views and opinions given by the specialists are their very own. These don’t characterize the views of the Financial Occasions)
