A recent report by the European Central Bank reveals that gold has overtaken the Euro as the second-highest foreign exchange reserve asset for the central banks.
Well, this should not shock any of us. Gold has drawn a lot of attention from central banks in the past many years. It was only a matter of time before central bankers preferred gold to at least some of the paper currencies.
Having said that, this is still a very surprising development. And it actually means a lot!
You see, the dollar’s share in forex reserves is shrinking. Yet it is 46% of the total reserves. Gold reserves, on the other hand, just hit the 20% mark, leaving the Euro behind at 16%.
The clear message emerging from this data is that central banks are banking more on gold than on dollar or euro-denominated assets. But are central banks buying so much gold to make a difference?
Yes, particularly in recent times. For three years in a row – 2022, 2023, and 2024 – Central banks bought over 1,000 tonnes of gold each year, a huge increase from the 400-500 tonnes on average during the previous decade.
Globally, central banks hold 36,000 tonnes, close to the all-time high of 38,000 tonnes, set in 1965 during the Bretton Woods era. Within that, the US central bank has the highest gold holding of 8,133.46 tonnes. In Q1 2025, the US made zero fresh purchases. Incidentally, India had 876.18 tonnes as of December 2024, bought 3.42 tonnes during Q1 2025, and closed the March quarter with 879.60.
And, central banks are not stopping. 95% of central banks, according to a recent survey conducted by the World Gold Council, believe that their gold reserves will increase over the next 12 months. Interestingly, 43% of them believe that their gold reserves will also increase over the same period.
Holding gold as a forex reserve by central banks is not a new thing. Of late, they have become more bullish on the yellow metal. Why? For ages, gold has been a haven asset, a hedge against uncertain times.
And, when geopolitical dynamics evolve, threatening economic and fiat currencies, the attractiveness of gold rises. While the US dollar still is a dominant global reserve currency, according to the IMF, the dominance is gradually declining.
In hindsight, what central banks started doing in 2022 is looking to be a nicely thought-out financial move. How it plays out over the longer term remains to be seen.
Gold price today is $3,350, just 4% shy of the all-time high peak price of $3,500, recorded on April 22.
The recent bull run in gold began in October 2022 when the price was around $1,500. After a staggering run of 120%, industry experts believe, gold is experiencing ‘fatigue’ and unless fresh triggers occur, some corrections and profit-booking are expected.
Also Read: Could gold fall 25% from current levels? Citi says…
In each of the last two years, gold gained over 20%. In 2025, gold is already up 27%. The most recent reason for gold to shine in 2025 was Trump’s tariffs, a trade war between nations and potentially having a detrimental impact on economies. How yet-to-be-implemented reciprocal tariffs shape up in the second half of 2026 remains to be seen.
Geopolitics is at a boiling point, with the Israel-Iran conflict showing no signs of ending. A direct entry by the US into the conflict could be more devastating to economies, resulting in a period in which gold is the only asset proven to withstand geopolitical shocks.
So, what is the lesson for investors here?
An exposure of around 10% of the portfolio in gold for retail investors is what most planners suggest.
But, is it the right time to start investing in gold when the price is at a peak? After all, gold’s blistering rally has alarmed many investors who had previously overlooked the yellow metal.
The answer to that is simple – If your financial goal is not in the near future, you should start investing in gold systematically. Yes, there could be price corrections along the way, as it happens in all asset classes, if economic uncertainty prevails, gold over the long term will act like a cushion to your investment portfolio.