Gold Strengthens Its Role in Global Central Bank Reserves at the Expense of the U.S. Dollar

Global central banks are increasingly shifting their reserve strategies in favor of gold, according to a recent report by the World Gold Council (WGC), reflecting a decline in confidence in the U.S. dollar amid geopolitical instability and economic pressures.

The survey, conducted between February 25 and May 20, 2025, and involving 73 central banks, revealed that 76% of respondents expect gold to account for a larger share of their reserves over the next five years, up from 69% in last year’s poll. Additionally, 95% of central banks anticipate a global increase in gold holdings over the coming year, the highest level recorded since the survey began.

The report also noted that the Bank of England remains the most preferred storage destination for gold, signaling continued trust in the UK’s gold custody infrastructure.

Gold Prices at Record Highs

This strategic shift comes amid a historic surge in gold prices. On April 22, gold reached $3,500 per ounce, marking a 95% increase since Russia's invasion of Ukraine in February 2022.

Declining Reliance on the Dollar

Conversely, the study indicated a growing trend toward reducing U.S. dollar holdings. Around 75% of central banks plan to cut their dollar-denominated reserves in the next five years, compared to just 62% in 2024.

Key Drivers Behind the Shift to Gold

The World Gold Council attributed the growing interest in gold to several factors:

Its strong performance during crises.

Its effectiveness in diversifying portfolios and reducing overall risk.

Its role as a hedge against inflation.

The council also highlighted that central banks have purchased over 1,000 metric tonnes of gold annually over the past three years, more than double the historical average of 400–500 tonnes during the previous decade.

Geopolitical and Trade-Related Concerns

The report further showed that 59% of central banks consider trade tensions and tariff risks significant factors in their reserve decisions. This concern is more pronounced in emerging and developing economies, with 69% citing it as relevant, compared to only 40% in advanced economies.