New ECB Report: Gold Surpasses Euro as Second Most Important Reserve Asset
In a report released yesterday by the European Central Bank, new data revealed that gold is now second only to the dollar as the world’s preferred reserve currency. This revelation follows a year where gold prices soared to historic highs, surpassing the inflation-adjusted peak of the 1979 oil crisis. This renewed enthusiasm for gold coincides with central banks’ aggressive accumulation of the precious metal, reminiscent of the Bretton Woods era when currencies were backed by gold. Driven by unprecedented geopolitical instability and economic worries, central banks accounted for over 20% of global gold demand in 2024, nearly doubling their purchase share from the previous decade.
Concerns about geopolitical unrest, inflationary pressures, and growing skepticism toward fiat currencies have fueled a rush toward gold as a safe haven. The intensification of the Russia-Ukraine conflict in 2022 intensified these anxieties, radically altering the gold market and reviving its traditional role as a refuge asset. Since late 2021, central banks in major emerging economies—including Turkey, India, and China—have accumulated more than 600 tonnes of gold, further underlining a global shift toward real, tangible reserves.
A recent survey by the World Gold Council illustrates the motivations behind this rapid accumulation, revealing that central banks primarily hold gold to diversify their foreign exchange portfolios, mitigate inflation threats, and protect against defaults and crises. Notably, one-fourth of surveyed central banks from emerging and developing economies explicitly cited concerns about international sanctions and potential disruptions to the monetary system as key factors behind their increased gold buying. This aligns with recent studies indicating a correlation between financial sanctions and nations stockpiling gold holdings, as governments seek to safeguard their sovereignty in an uncertain geopolitical landscape.
Traditional demand channels continued to dominate overall gold usage, with investment and jewelry sectors still collectively making up approximately 70% of global demand in 2024. Yet, the powerful shift by central banks has notably reshaped the market dynamic, spurring speculation about ongoing demand growth. Historically, gold supply has responded elastically to increased demand, suggesting that continued central bank interest might drive production higher and further stimulate the global gold market.
As gold’s role within central bank holdings now approaches historic levels unseen since the Bretton Woods period, the precious metal’s enduring value as a monetary anchor becomes even more apparent. In a world confronting volatile geopolitics, unsustainable debt loads, and persistent inflation concerns, gold’s resurgence highlights continued skepticism toward current monetary policies and fiat currencies. Investors and policy makers alike should take notice as the global trend toward sounder, gold-backed financial resilience gathers momentum.
