The European Central Bank’s (ECB) annual monetary assessment report, released on Wednesday, reveals that gold has now surpassed the euro to become the second largest reserve asset, trailing only behind the US dollar.
Boosted by record-breaking purchase volumes and soaring gold prices, gold now accounts for approximately 20% of global official reserves by the end of 2024—surpassing the euro’s 16%. Although the US dollar remains dominant with a 46% share, its influence is steadily declining.
The report highlights that central banks around the world continue to increase their gold holdings at an unprecedented rate. In 2024, for the third consecutive year, global gold purchases by central banks exceeded 1,000 tonnes. The total official gold reserves have reached 36,000 tonnes, nearly touching the historical high seen since the Bretton Woods era of 38,000 tonnes.
According to data from the World Gold Council, the top buyers last year were Poland, Turkey, India, and China, which together accounted for roughly one-quarter of all global purchases.
In addition to the volume surge, the rapid rise in gold prices has been a crucial factor behind gold’s ascendancy to the position of the world’s second most valuable reserve asset. Over 2024, gold prices increased by nearly 30% and continue to climb this year, hitting a record high of USD 3,500 per ounce in April.
ECB economists noted that geopolitical risks are a major driver behind many central banks’ shift from the US dollar to gold as a means of diversifying their asset portfolios. Following the outbreak of the Russia-Ukraine conflict in 2022, the demand for gold as a reserve asset surged and has remained high ever since. An ECB survey found that two-thirds of central banks invest in gold for diversification, and 60% cite it as a safeguard against geopolitical risks.
The ECB report also underscored that since the fourth quarter of 2021, countries in close geopolitical proximity to China and Russia have significantly increased the share of gold in their official foreign exchange reserves. This trend underscores that geopolitical tensions have driven many developing nations to pursue de-dollarization. Moreover, the analysis noted that the long-term inverse relationship between gold prices and real yields broke down in 2022, as many central banks ramped up gold purchases to hedge against potential sanctions.
Looking ahead, geopolitical uncertainties are expected to further boost central bank gold holdings. A striking 80% of official reserve managers surveyed by the ECB believe that geopolitical factors will play a crucial role in shaping gold allocation decisions over the next five to ten years.
