Gold tops euro to become central banks’ second favourite reserve asset
Central banks now hold more gold than euros in the face of global trade tensions and volatile markets, according to a report produced by the European Central Bank (ECB), making it the world’s second largest reserve asset after the US dollar.
Purchases of gold were twice as high in 2024 as the average seen over the last decade, with central banks accumulating more than 1,000 tonnes of gold over the year.
Due to a surge in the price of the metal, which was worth about $3,343 per ounce on Wednesday at about 9:40, the share of gold in global foreign reserves now stands at some 20 per cent, compared to just 16 per cent for the euro.
“Although current data indicate no significant changes in the international use of the euro, it is important to remain vigilant,” ECB economists warned.
“Central banks continued to accumulate gold at a record pace and some countries have been actively exploring alternatives to traditional cross-border payment systems.”
“There is evidence of a link between geopolitical alignments and shifts in invoicing currency patterns in global trade, particularly since Russia’s invasion of Ukraine,” they added.
ECB analysts also pointed to survey data showing two in five central banks invested in gold to protect themselves against global tensions.
Gold closer to new highs
India and China were among the largest buyers of gold last year, boosting global gold reserves to around 36,000 tonnes in 2024, which is just shy of the 38,000 peak seen in the mid-1960s when international currency exchanges were linked to the US dollar and gold.
ECB analysts also highlighted the increased use of other payment systems after BRICS+ leaders, which include Xi Jiping of China, Vladimir Putin of Russia and Lula da Silva of Brazil, agreed to develop cross-border structures with local currencies.
President Trump’s support of cryptocurrencies also pose a threat to the euro, the ECB report said, as their emergence could lead to shifts in demand for international currencies.
The authors of the report urged ECB officials to take active steps to maintain the euro’s status as a reliable store of value.
“The number one priority must be advancing the savings and investment union to fully leverage European financial markets,” the report said.
“Eliminating barriers within the EU is essential to enhancing the depth and liquidity of euro funding markets, which is a precondition for the wider use of the euro.
“The planned issuance of bonds at the EU level – as Europe takes charge of its own defence – could make an important contribution to achieving these objectives.”