ECB: Gold Now Second Only to USD in Global Reserves

Gold has firmly reasserted itself as a strategic anchor in the global financial system, now ranking second only to the US dollar—and ahead of the euro—in terms of official reserve holdings measured at market value. This structural shift, outlined in the European Central Bank’s latest report on the international role of the euro, underscores how price dynamics, central bank behavior, and geopolitical realignment have collectively elevated gold’s monetary relevance.

From Inflation Hedge to Geopolitical Barometer

In 2024, gold prices surged by 30%, followed by another 30% year-to-date in 2025, briefly reaching an all-time nominal high of $3,500 per troy ounce in April. This sharp rally signals more than just a technical or inflation-driven cycle—it reflects a broader revaluation of gold’s role amid rising global uncertainty.

One of the more recent illustrations of this shift came with the spike in gold futures following a military flare-up between Israel and Iran, confirming gold’s renewed function as a geopolitical hedge.

While traditionally influenced by real interest rates and inflation expectations, gold has increasingly decoupled from such monetary drivers. Between 2008 and early 2022, the negative correlation between gold prices and real yields made the metal a reliable hedge in low-rate or high-inflation environments. Yet since Russia’s invasion of Ukraine, this pattern has weakened significantly. Despite rising or stable real yields, gold has continued to climb, suggesting that its valuation is being driven by forces beyond rate expectations.

Non-monetary factors have now taken center stage—especially geopolitical risk, reserve diversification, and sanctions avoidance. This transformation reflects a recalibration by central banks and investors alike, who are positioning gold not only as an inflation buffer, but also as a politically neutral store of value. In an era of increasing geopolitical fragmentation and weaponized finance, gold’s lack of counterparty risk has made it uniquely attractive.

The implications are far-reaching. If gold is no longer primarily priced off opportunity cost or real yields, then conventional valuation models understate its defensive strength. Instead, gold is behaving more like a global insurance asset, valued for its sovereignty-proof liquidity and its historical reliability in times of crisis.

Key Role of Central Banks

The most significant force behind gold’s recent ascent is central banks’ purchases. In 2024, central banks bought over 1,000 tonnes of gold—double the prior decade’s average—pushing global official holdings to 36,000 tonnes, near the 1965 Bretton Woods peak of 38,000 tonnes. This unprecedented accumulation lifted global official holdings to 36,000 tonnes, approaching the historic peak of 38,000 tonnes reached in 1965 during the Bretton Woods era.

At current market valuations, these holdings have pushed gold’s share in total global foreign exchange reserves to 20%, overtaking the euro’s 16% for the first time according to the ECB’s recent findings. This milestone is not the result of speculative demand, but of deliberate, sustained reallocation by central banks—signaling a strategic repricing of gold as a monetary reserve asset.

Notably, this wave of buying has been highly concentrated in emerging markets, particularly China, Turkey, and India, which together have added more than 600 tonnes since late 2021. Their purchases reflect a broader movement among non-Western economies to de-risk from reserve currencies tied to Western financial systems and legal jurisdictions.

From Diversification to De-Risking

Survey data from the World Gold Council conducted in early 2024 helps unpack the motives behind this buying. Diversification remains the primary rationale, cited by two-thirds of central banks. However, geopolitical risk—specifically the desire to insulate reserves from sanctions or political pressure—was cited by 40% of respondents. A substantial number of central banks also pointed to gold’s role as a long-term hedge against inflation, default risk, and systemic disruption.

These motivations are particularly strong in emerging and developing economies, where one in four central banks explicitly linked their gold strategy to concerns over sanctions or anticipated changes in the global monetary order. In fact, half of the top ten annual jumps in gold’s reserve share since 1999 followed sanctions against the countries involved. This underscores gold’s appeal as an unencumbered asset, free from the risks of seizure or political interference.

Taken together, these trends mark a departure from reserve management as a purely financial optimization exercise. Today, for many sovereign actors, gold serves as a hedge not just against inflation or currency depreciation, but against the rules of the existing system itself.

Conclusion: Gold’s Strategic Repricing

The ECB’s findings reflect a broader paradigm shift in the logic of reserve accumulation. Gold has not only appreciated in nominal terms—it has been reconceptualized as a core asset for monetary sovereignty and geopolitical insulation.

Its elevation to second place in global reserves is more than symbolic. It signals a growing distrust in traditional reserve currencies and a collective desire among central banks—particularly outside the Western alliance—to build resilience against political and financial coercion.

In this new global context, gold is no longer a passive relic of the past. It is increasingly being recognized as an active pillar of reserve strategy, with implications that stretch far beyond price charts and interest rate models.