Gold, long considered a symbol of wealth and security, achieved a historic milestone in 2025. It surpassed the Euro to become the world’s second-largest reserve asset. But what led to this shift, and what does it mean for investors? Let’s explore gold’s rising role and what the future may hold.
What’s Happening?
Gold has overtaken the Euro to claim the second spot as a global reserve asset, trailing only the US dollar. According to a report by the European Central Bank (ECB), gold accounted for 20% of global official reserves in 2024, up from 16.5% in 2023, while the Euro’s share fell to 16%. The US dollar continues to dominate with a 46% share.
In 2024, central banks purchased over 1,000 tonnes of gold. By the end of the year, they held reserves totalling 36,000 tonnes, approaching the historic peak of 38,000 tonnes seen in the 1960s. Gold prices rose 26% in 2024 and further climbed 25% in the second quarter of 2025, reaching a record $3,500 per troy ounce.
Why Are Central Banks Increasing Their Gold Reserves?
The growing appetite for gold among central banks is driven by both geopolitical and economic factors. Following Russia’s invasion of Ukraine in 2022, many banks turned to gold as a ‘safe haven’ asset. In a 2024 World Gold Council survey, 60 central banks cited gold as a store of long-term value, a hedge against inflation, and a resilient asset during crises. It was also valued for its role in portfolio diversification.
A quarter of central banks in emerging and developing economies pointed to concerns over sanctions and shifts in international monetary policy. Since the end of 2021, China, India, and Turkey have collectively added more than 600 tonnes of gold. In 2024, central banks accounted for over 20% of global gold demand, double the average of the 2010s. Doubts over the security of the US dollar and changes in US trade policy have further boosted demand.
Why Are Gold Prices Rising?
Expectations of Fed Rate Cuts: Easing inflation data in the US has strengthened expectations that the Federal Reserve will cut interest rates. This reduces real yields, making non-interest-bearing assets like gold more attractive.
Geopolitical Tensions: In times of uncertainty and conflict, gold is seen as a safe asset. Situations like wars also affect crude oil prices and global trade, often driving investors towards gold.
Sustained Central Bank Demand: Ongoing large-scale purchases by countries like China and India continue to support gold prices.
What Does This Mean for Investors?
For investors, gold’s elevated status signals both opportunity and caution. Historically, gold has delivered strong returns—its 26% rise in 2024 alone adds to its appeal. However, price volatility and a potential decline in central bank demand pose risks.
According to the World Gold Council, central bank gold purchases declined by 33% QoQ in Q1 2025, especially in China. Still, gold is considered an effective hedge against inflation and geopolitical instability. UBS Global Wealth Management’s Mark Haefele recommends maintaining a gold allocation and believes prices could rise to $3,800.
What’s Next?
Gold’s position is expected to remain strong in the future, although its pace of growth may slow. The ECB notes that future price movements will depend on supply availability, which has remained flexible alongside demand. As per The Economic Times, analysts believe central bank buying may be nearing its peak after three aggressive years, unless new geopolitical turmoil revives demand.
As long as global uncertainty and economic risks persist, gold will continue to hold its ground. Its new status as the world’s second-largest reserve asset only enhances its significance. For investors, it’s not just a safe haven, but also a valuable tool for long-term portfolio diversification.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
