Summary of Key Points
The latest report from the European Central Bank (ECB) shows that gold has surpassed U.S. government bonds as the largest component of global official reserves, accounting for 27% compared to 22%. This shift reflects a trend towards “de-dollarization” and diversification of reserves, although the dollar remains the primary reserve currency, with dollar-denominated assets making up 42%. Although gold is favored for its lack of credit risk, it has drawbacks such as high volatility, no interest income, and significant storage costs. In the short term, gold prices are under pressure due to rising oil prices caused by conflicts in the Middle East and expectations of interest rate hikes by the Federal Reserve (Fed). In the long term, however, major banks are optimistic about gold due to uncertainties surrounding U.S. hegemony.
1. Gold Surpasses U.S. Bonds: Price Increases Are More Important Than Purchases
Many wonder how gold suddenly surpassed U.S. bonds. The main reason is not the sheer volume of gold purchased by central banks but rather the revaluation of its value driven by soaring prices.
- Data Comparison: By the end of 2025, gold was expected to account for 27% of reserves, while U.S. bonds would account for 22%. However, using 2023 gold prices, the proportion of U.S. bonds would still be 26%, and gold only 16%, indicating that price increases were the key factor in the shift.
- Purchasing Momentum: Emerging economies such as China, Poland, Turkey, and India have been continuously buying gold. For example, the Chinese central bank has increased its holdings for several months, contributing to the rise in gold’s reserve proportion.
In simple terms, even if the amount of gold purchased hasn’t increased significantly, its total value has surpassed that of U.S. bonds due to price increases.
2. The Underlying Trend: Countries Are Quietly Diversifying Their Risks
The fact that gold has overtaken U.S. bonds reflects a change in the trust that central banks have in the dollar—they no longer want to tie all their reserves to it.
- Catalyst: The 2022 Russia-Ukraine conflict led to the freezing of Russian dollar reserves by the United States, making countries realize that dollar assets could be easily seized. This accelerated the diversification of reserves.
- Current Situation: Although the proportion of gold has increased, dollar-denominated assets (including U.S. bonds and cash) still account for 42%, the highest share globally, while the euro accounts for 15%. This shows that “de-dollarization” is a trend, but the dollar’s dominant position has not yet been shaken.
In layman’s terms, countries are moving part of their assets away from dollars to avoid potential risks associated with U.S. actions.
3. Gold as a Reserve: Advantages and Disadvantages
Gold has become the new leader in reserves because it offers a unique advantage—no counterparty risk (unlike the dollar, which could be subject to U.S. government defaults or freezes). However, the ECB also points out its drawbacks:
1. High Volatility: Gold prices fluctuate significantly; for example, recent conflicts in the Middle East have caused oil price increases, leading to drops in gold prices.
2. No Income Generation: Holding gold generates no interest, unlike U.S. bonds, which provide annual returns.
3. High Costs: Storing physical gold requires warehouses and security, which incurs significant expenses.
4. Lack of Flexibility: Gold production is limited, and when the world needs more liquidity, it cannot be “printed” like dollars.
4. Gold Price Prospects: Short-term Pressure, Long-term Upside
What will happen to gold prices in the future?
- Short Term (within a few months): There is significant pressure on gold prices due to rising oil prices caused by conflicts in the Middle East, which could lead to inflation and potential Fed interest rate hikes, making U.S. bonds more attractive. As gold does not generate income, prices are likely to fall.
- **Long Term (1–3 years): Major banks are optimistic about gold. JPMorgan Chase and Goldman Sachs believe that U.S. domestic politics are becoming increasingly divided, potentially weakening its hegemony, and the safety of gold will be more valued. Additionally, central banks continue to buy gold, which could drive prices up to around $5,000 per ounce (from the current level of around $2,300).
In summary, expect gold prices to decline in the short term but to rise in the long term.
This report indicates that the global monetary system is undergoing subtle changes, with gold playing an increasingly important role. However, the dollar has not yet relinquished its dominant position. For individuals considering investing in gold, it’s essential to decide whether they are looking for short-term speculation or long-term risk hedging—focusing on Middle East developments and Fed policies in the short term, as well as U.S. stability in the long term.