Central banks are increasingly diversifying their reserve assets, boosting gold’s prominence.
The European Central Bank (ECB) reports that gold has surpassed the euro to become the second-largest reserve asset globally by market value. This shift, according to the ECB, is due to record central bank purchases and increasing geopolitical instability.
In 2024, central banks increased their gold reserves by over 1,000 tonnes – double the average annual increase of the previous decade – bringing total official holdings to approximately 36,000 tonnes. This figure approaches the peak seen during the Bretton Woods era in 1965, according to the ECB.
The ECB stated in its annual review of the euro’s international role that, “This stockpile, combined with high prices, elevated gold to the second-largest global reserve asset at market prices in 2024, trailing only the US dollar.”
Gold represented 20% of global official reserves by market value at the close of 2024, exceeding the euro’s 16%. The price of gold experienced a surge of almost 30% in 2024, reaching record highs above $3,500 per troy ounce, which significantly increased its share in reserve portfolios.
The ECB’s research indicated that “two-thirds of central banks invested in gold for diversification purposes, while two-fifths did so as a hedge against geopolitical risk.” Many of the primary purchasers were emerging economies, particularly those with less geopolitical alignment with the West.
Although the euro’s proportion of global reserves remained relatively stable at around 20% when measured at constant exchange rates, it was surpassed in market value terms due to the sharp increase in gold prices. “The international role of the euro remained broadly stable in 2024,” the ECB stated, underscoring that the euro remained the second most widely used currency overall.
The ECB has also noted that “some countries have been actively exploring alternatives to traditional cross-border payment systems.”
These countries are primarily “strongly influenced by geopolitical factors” such as the conflict in Ukraine and related sanctions, increasing tensions between the US and China, instability in the Middle East, and a broader effort by BRICS nations to decrease their reliance on Western financial systems.
The ECB also warned that the euro faces new challenges from factors such as the increasing role of cryptocurrencies in cross-border transactions and the growing popularity of stablecoins backed by US Treasuries. The report indicates that the US dollar’s share of foreign exchange reserves decreased slightly to 57.8%.