Central Banks Boost Gold Holdings as Dollar Dominance Eases

Central banks around the world are accelerating purchases of gold as concerns over geopolitical tensions, sanctions risks and rising government debt encourage policymakers to diversify reserves away from the U.S. dollar.

Gold has overtaken the euro as the world’s second-largest reserve asset by market value, according to recent data, reflecting a significant shift in reserve management strategies among both emerging and developed economies. The trend has gathered momentum since Russia’s foreign exchange reserves were frozen following its invasion of Ukraine, prompting many countries to reassess the security of dollar-denominated assets.

Central banks bought more than 1,000 tonnes of gold annually for a third consecutive year in 2025, maintaining the strongest pace of purchases in modern records. Countries across Asia, the Middle East and Africa have been among the most active buyers as they seek greater diversification and protection against geopolitical risks.

The shift comes as the dollar’s share of global foreign exchange reserves continues to decline gradually. While the U.S. currency remains the world’s dominant reserve asset, its share has fallen from more than 70% two decades ago to below 60% today, according to International Monetary Fund data.

Meanwhile, China has emerged as one of the most closely watched buyers. The country’s central bank has steadily expanded its bullion holdings as Beijing seeks to reduce reliance on dollar assets and strengthen confidence in the yuan. Other major purchasers have included India, Turkey, Poland and several Gulf states.

Gold’s appeal has also been supported by strong price performance. Bullion has repeatedly reached record highs over the past year as investors and central banks sought safe-haven assets amid conflicts in the Middle East, trade tensions and uncertainty surrounding the global economic outlook.

Unlike foreign currencies, gold carries no direct counterparty risk and cannot be frozen by another government. That characteristic has become increasingly important for countries seeking to shield reserve assets from geopolitical disputes and sanctions.

The move does not signal the end of dollar dominance. The U.S. dollar remains the primary currency for global trade, international borrowing and cross-border payments. U.S. Treasury securities also continue to offer liquidity and scale unmatched by any other reserve asset.

However, analysts say reserve diversification is likely to remain a long-term trend. Rather than replacing the dollar entirely, many central banks are pursuing a broader mix of assets that includes gold, alternative currencies and other instruments designed to reduce concentration risk.

The growing role of gold reflects a changing global financial landscape in which geopolitical considerations are playing an increasingly important role in reserve management decisions. As economic fragmentation and strategic competition reshape international finance, central banks appear more willing than ever to hold a larger share of their reserves in bullion.

For policymakers, the objective is not necessarily to abandon the dollar but to reduce dependence on any single asset. The result is a steady rebalancing of global reserves, with gold emerging as one of the biggest beneficiaries of that shift.

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