A mix of geopolitical risk, economic uncertainty, and gold’s time-tested resilience pushed central banks to accumulate record stockpiles in 2024, vaulting bullion to historic highs in price and prestige.
In 2024, gold accounted for 20% of global official reserves, up from around 16.5% in 2023, overtaking the euro, which dropped to 16%, according to ECB data. The U.S. dollar remains the dominant reserve asset, holding steady at around 46%.
“Gold reserves held by central banks stand at levels close to those last seen in the Bretton Woods era,” the ECB report said. This surge, paired with historically high prices, “made gold the second largest global reserve asset at market prices in 2024 – after the US dollar.”
A flight to safety triggered by war
A turning point for the bullion came with Russia’s full-scale invasion of Ukraine in early 2022. The geopolitical shock, coupled with surging inflation and rising interest rates, spurred a flight to so-called safe haven assets. Central banks began hoarding gold at a pace unseen in decades, a trend that has only accelerated since.
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In 2024, central banks accounted for more than 20% of global gold demand, a sharp jump from the 10% average seen during the 2010s. Meanwhile, consumer demand, particularly for jewelry, waned in key markets like China, but was offset by rising investor demand. Combined, investment and jewelry still made up 70% of global gold consumption.Recent price movements have been turbulent. Gold touched a series of record highs through 2024 and early 2025, though the rally has recently cooled amid fast-changing U.S. tariff policy and broader market volatility.On Thursday, gold prices edged up to a one-week high, driven by softer U.S. inflation data that fueled expectations of Federal Reserve rate cuts later this year. Spot gold rose 0.2% to $3,360.29 an ounce, as of 0838 GMT, after earlier touching its highest level since June 5.
U.S. gold futures were up 1.1% at $3,380.00 on Thursday. A 0.3% drop in the U.S. dollar index to a near two-month low also supported bullion, making it cheaper for non-dollar buyers.
The geopolitical hedge
According to the ECB report, central banks view gold primarily as a tool for portfolio diversification, while also valuing it as a hedge against geopolitical risks. A 2024 survey by the World Gold Council of nearly 60 central banks identified three main reasons for their gold holdings: “(i) a long-term store of value and an inflation hedge, (ii) (good) performance during times of crisis, and (iii) an effective portfolio diversifier.”
The survey also revealed that one in four central banks from emerging and developing economies cited “concerns about sanctions” or “the anticipation of changes in the international monetary system” as reasons for boosting their gold exposure.
Notably, China, India, and Turkey, countries navigating complex geopolitical alignments, have collectively added more than 600 tonnes of gold to their reserves since the end of 2021. The ECB noted that “countries that are geopolitically close to China and Russia have seen more marked increases in the share of gold in their official foreign reserves since the last quarter of 2021.”
Breaking the link with real yields
Historically, gold prices have been negatively correlated with real interest rates, offering a hedge against inflation and low nominal yields. But the ECB found that this correlation “broke down after Russia’s full-scale invasion of Ukraine,” indicating that geopolitical factors now dominate gold price dynamics.
Supporting this, “recent research indicates that imposing financial sanctions is associated with increases in the share of central bank reserves held in gold.” In fact, in five of the ten largest annual increases in gold reserve shares since 1999, the countries involved had faced sanctions in that year or the one before.
Supply response and the road ahead
Despite tightness in the market, the ECB noted that gold supply has historically proven elastic in response to rising demand, aided by expansion in above-ground stocks. “If history is any guide, further increases in the official demand for gold reserves may also support further growth in global gold supply,” the report said.
Still, analysts caution that central banks may be approaching their limit. After three years of aggressive buying, some institutions may be nearing their fill, with future purchases potentially tapering unless new geopolitical shocks rekindle demand.
For now, gold’s crown as the world’s second-largest reserve asset appears secure, the ultimate hedge, in an era where uncertainty is the only constant.
Also read | Gold Price Prediction: Yellow metal opens above Rs 98k/10 gms. Time to book profits?
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