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Thought of the day

Gold has leaped ahead of US Treasuries in the global central bank reserve mix, according to new European Central Bank estimates, confirming a notable shift in reserve composition. The ECB’s June Review says gold accounted for 27% of total official global reserves as of end-2025, above US Treasuries at 22% and the euro at 15%.

The move reflects both continued official demand and a powerful price rally. Central bank gold purchases slowed to around 850 tonnes in 2025 from more than 1,000 tonnes a year prior, though they remained well above historical norms even as the underlying gold price surged by around 60% in 2025. The European Central Bank’s June Review attributes the demand growth for gold in part to geopolitical tensions.

This shift in official reserves into gold has not come at the expense of the euro, according to the ECB findings, with the single currency’s international role growing “moderately” in 2025, and its share across a broad set of global currency-use indicators reaching around 20%. Additionally, euro-denominated international debt issuance rose by around 30% to almost EUR 1tr in 2025, while foreign portfolio inflows into the euro area exceeded EUR 850bn.

While it may be tempting to read this as a challenge to US dollar dominance, we think the message for global investors is more nuanced:

The US dollar still anchors global reserves. The US dollar still accounted for about 57% of global foreign exchange reserves in 2025, according to the ECB report, while the rise in gold holdings above Treasuries in total official reserves “largely reflects valuation effects” and not a wholesale rotation away from dollar assets. When the ECB adjusts gold to end-2023 prices, gold and the euro each account for around 16% of reserves, while US Treasuries still stand at 26%. Reserve managers tend to be conservative in shifting how they benchmark asset holdings, which supports the case for gradual diversification rather than a decisive break with the US dollar. In addition, we note that gold itself is priced in US dollars on global markets (though it is not a dollar-backed asset).

Gold has emerged as a strategic and pragmatic hedge. The ECB report cites central bank demand for gold not only on a diversification basis, but also as a hedge against geopolitical risk. Since 2022, China has bought more than 350 tonnes of gold, Poland 320 tonnes, and India 130 tonnes, according to ECB tallies. Türkiye bought 220 tonnes over the same period, before selling around 130 tonnes in early 2026. We think this demonstrates that gold is not just a passive store of value, but an asset that can be pragmatically mobilized by central banks when facing pressure on currencies, energy imports, or other domestic factors.

The euro is gaining ground, albeit gradually. The ECB report characterized the euro’s global role as having grown “gradually but steadily” over the past decade. That matters because reserve managers hold euro exposure through liquid euro-denominated financial assets, including securities and deposits captured in the ECB’s reserve and international financing indicators, rather than through physical currency alone. The supporting evidence improved in 2025, with euro-denominated international issuance reaching a record high and foreign inflows into euro area assets staying strong.

So, we take the apparent shift in central bank reserve behavior as a reminder for investors to keep their own portfolio construction top of mind, and exposure diversified across asset classes, geographies, and currencies. We remain constructive on gold over the medium term, despite the risk of more near-term volatility. We forecast prices at USD 5,500/oz through 1H27. At the same time, the recent rise in yields has improved the case for locking in attractive income in high-quality fixed income, in our view, especially in short- to medium-maturity corporate bonds that are less exposed to debt-supply and duration risks. In practice, we think investors should stay diversified across their portfolio, including exposure to gold and other commodities, select euro-denominated assets, and high-quality fixed income. We maintain a EURUSD target of 1.20 for mid-2027 as energy prices normalize and the Federal Reserve eventually resumes easing, while European fiscal support should further underpin the single currency