Central Banks Plan to Abandon Dollars and Buy Gold

The annual survey of central banks shows that the gold buying rally is set to continue. What is particularly notable is the sharp increase in the number of central banks predicting a “significant” decline in dollar reserves.

Central banks have been increasing their gold reserves by more than 1,000 tons each year since 2022, which is significantly more than the average of the previous decade (400-500 tons per year).

Similar to previous year’s surveys, central banks overwhelmingly (95%) believe that central banks’ global gold reserves will continue to grow over the next 12 months.

A full 43 percent of respondents said they plan to increase their gold reserves over the next year. Never before have so many central banks planned to increase their reserves. Interestingly, not a single central bank plans to reduce its gold reserves.

Almost three-quarters (73%) of central banks believe that the share of reserves held in the US dollar will decrease moderately or significantly over the next five years. They also believe that the share of other currencies (e.g. the Chinese yuan) and gold will increase over the same period. As recently as 2022, 4 percent of central banks believed that dollar reserves would decrease significantly. This year, that percentage has already risen to 28, or seven times higher.

3 Main Reasons to Own Gold

Central banks have identified three main reasons why gold is a strategically important asset in their reserves: first, it protects against crises, second, it is a store of value, and third, it allows for effective asset diversification.

Central banks also highlighted the fact that gold hedges geopolitical risks and does not carry the risk of insolvency as one of the most important factors.

The survey also found that more and more central banks are actively managing their gold reserves – up from 37% last year, to 44% this year. This means that several countries that have simply been holding gold for decades and have not participated in the market have also started to manage their gold reserves.

The Bank of England continues to be the most popular gold storage location for central banks – a whopping 64% of central banks hold at least some of their gold there. However, the number of central banks holding gold domestically has increased significantly – while last year 41% of central banks held some of their gold domestically, this year the number has increased to 59%.

The World Gold Council’s annual survey, conducted from February to May, provides insight into why central banks are buying gold and what they plan to do with their reserves over the next five years. A total of 73 central banks around the world responded to the survey, a very representative sample.

The Gold Buying Rally Will Continue Over the Next 5 Years

The survey shows that central banks plan to continue their gold buying spree. A whopping 76 percent of central banks believe that the share of gold in central bank reserves will be moderately or significantly higher, up from 69 percent last year. Central banks in both developed and emerging markets were broadly in agreement on this issue.

This year’s survey of central banks clearly reflects the current transformation of the global monetary order. Central banks hold their dollar reserves primarily in US Treasury bonds, the prices of which have fallen significantly over the past five years. Confidence in the US’s solvency and political stability is declining, which is rapidly eroding the credibility of the dollar in international markets.

There is a major transfer of wealth from debt-based securities to real assets. Of the debt-based securities, US and other government bonds are the ones that will take the biggest hit. Among real assets, however, the historic and traditional reserve asset, gold, is emerging as the biggest winner.

Key Takeaways

The latest survey results highlight a profound and accelerating shift in global reserve management strategies. Central banks worldwide are clearly moving away from an overreliance on the US dollar, driven by concerns over geopolitical instability, diminishing trust in US fiscal discipline, and the inherent vulnerabilities of debt-based assets. Instead, gold is reasserting itself as the cornerstone of monetary security – valued for its crisis protection, role as a store of value, and ability to diversify reserves effectively.

With an unprecedented number of central banks planning to increase their gold holdings and none intending to reduce them, it is evident that gold’s appeal as a safe haven is stronger than ever. This strategic pivot not only underscores waning confidence in traditional reserve currencies but also signals a broader rebalancing of the global financial order.

As this trend continues, we can expect gold to play an increasingly central role in shaping the stability and resilience of national economies for years to come.