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According to a report released by the European Central Bank on Tuesday, gold has replaced U.S. Treasury bonds as the world’s largest reserve asset for central banks. The report shows that by the end of 2025, gold accounted for 27% of global central bank reserve assets, up from 20% a year earlier; over the same period, the share of U.S. Treasury bonds fell from 25% to 22%. Behind this shift are several years of continuous gold purchases by central banks and a near-doubling of gold prices over the past two years.
The European Central Bank points out that the significant increase in gold’s share of reserves is primarily attributable to valuation effects. Driven by surging gold prices in 2024 and 2025, the value of gold assets rose accordingly, securing a larger share of global central bank reserves. However, the ECB does not consider this trend sustainable. In its report, it states that compared with major fiat currencies, gold has limitations as an official reserve asset: its price is highly volatile, it generates no income, and storage costs are high when held in physical form. Moreover, gold supply is not fully elastic and cannot be seamlessly adjusted to meet changes in international liquidity demand.
After sharp increases over the past two years, gold prices hit an all-time high of nearly $5,600 per ounce in January of this year. However, following the outbreak of conflict in the Middle East, gold failed to rise further on safe-haven sentiment and instead fell sharply from its peak. As of press time, spot gold was trading at $4,476 per ounce. The main reasons are that the energy shock triggered by the Middle East conflict pushed up inflation, and the new Federal Reserve Chair, Warsh, may implement a policy mix of “shrinking the balance sheet first, cutting interest rates later,” with expectations of a hawkish Fed policy suppressing dollar-denominated gold. In addition, profit-taking by investors and the sale of gold reserves for cash by some countries have intensified selling pressure on gold.
Gold’s performance this year has been as volatile as a roller coaster, and several major Wall Street banks have repriced gold. Morgan Stanley (MS) was the first to lower its gold price forecast at the end of April, revising its target for the second half of 2026 down to $5,200 per ounce, citing rising real interest rates due to geopolitical frictions and a delayed Fed rate cut, as the classic negative correlation between gold and real interest rates returns to normal. JPMorgan Chase (JPM) has repriced its average gold price forecast for 2026 to $5,243 per ounce, pointing to persistently low futures open interest and trading volume. ANZ Bank lowered its year-end gold target to $5,600 per ounce and pushed back its timeline for gold reaching $6,000. Citigroup is bearish on gold in the short term, predicting that prices will hit $4,300 per ounce within the next three months, but it is not turning fully pessimistic on the medium-term outlook, maintaining a target of $5,000 over the next six to twelve months.
At the same time, most institutions have not softened their stance on gold’s future trend. Goldman Sachs maintains a bullish view, forecasting that gold will resume its upward trend by the end of 2026, with a target price of $5,400 per ounce. UBS has lowered its gold price forecast for the end of 2026 to $5,500 but believes the structural bull market is not yet over. Wells Fargo has even made a bold prediction of $8,000, with its main bullish argument based on currency depreciation, suggesting that gold could reach $8,000 per ounce by 2027.
