Global central banks are indicating a significant transformation in their reserve strategies, with gold emerging as the preferred safe-haven asset. A recent survey by the World Gold Council (WGC) highlights that an increasing number of central banks plan to boost their gold holdings over the next five years while expecting a steady decline in reserves held in U.S. dollars.

Gold Gains Favor Among Central Banks

The survey, which collected responses from 73 central banks between February 25 and May 20, reveals a growing reliance on gold:

• 76% of respondents expect their gold holdings to rise in the next five years, compared to 69% in 2023.

• 95% believe gold reserves will increase in the next year, marking a record high from 81% previously.

• Nearly 75% foresee a decline in their dollar-denominated reserves, up from 62% the prior year.

This shift arises despite gold reaching record prices—$3,500.05 per ounce in April, reflecting a 95% surge since the onset of the Russia-Ukraine conflict in 2022.

Reasons Behind the Gold Acquisition Trend

The WGC identifies three key drivers behind this global movement:

1. Resilience Against Crises: Gold has historically served as a hedge during periods of geopolitical instability and financial crises.

2. Diversification: Central banks seek to lessen dependence on fiat currencies, particularly the U.S. dollar.

3. Inflation Hedge: Gold’s performance during high inflation periods continues to attract policymakers’ interest.

Over the past three years, central banks have collectively acquired more than 1,000 metric tons of gold annually, a sharp increase from the 400-500 tons per year seen in the prior decade.

Adapting Reserve Strategies in Uncertain Times

This rapid accumulation occurs against a backdrop of increasingly fractured geopolitics and rising skepticism towards standard reserve currencies. While the U.S. dollar retains dominance, it is losing favor among many central banks, particularly in emerging markets aiming to shield themselves from Western sanctions.

Furthermore, the Bank of England remains the most preferred vault for central banks to safeguard their gold, indicating that while preferences for portfolios may change, institutions still prioritize security.

Future Implications

If these trends materialize, the next five years might witness a fundamental reshaping of global reserve compositions. Gold’s robust performance in 2024 and 2025 may not only be driven by retail or institutional demand but also sustained central bank purchases.