Global central bank reserves undergo major change: After historically surpassing 30%, if gold breaks $5,790, it will surpass the status of the US dollar.

Global central bank reserves undergo major change: After historically surpassing 30%, if gold breaks $5,790, it will surpass the status of the US dollar.

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Gold's status in global central bank reserves is undergoing a historic shift. As of now, the share of gold in the combined total of global foreign exchange reserves and gold assets has surpassed 30%, while the US dollar's share has dropped to 40%.

According to the latest estimates by Deutsche Bank, if gold prices surpass $5,790 per ounce, gold and the US dollar will be equally matched in global reserves, each accounting for 36%, achieving a historic overtaking. This price is only about 33% higher than the current level.

The strong rise in gold prices over the past six months has pushed the share of gold reserves from 24% to 30%, while the US dollar's share in the same period has dropped from 43% to 40%. A World Gold Council survey this year shows that 43% of central banks plan to increase their gold holdings, up from 29% last year, and 95% of reserve managers expect global central bank gold holdings to rise in the next 12 months.

This trend has accelerated since 2022, when the US weaponized the dollar in response to the Russia-Ukraine conflict, prompting central banks to increase gold holdings at the fastest pace in 55 years. For investors, sustained central bank buying provides long-term support for the gold price, while the dollar's dominant role in the global reserve system faces a structural challenge.

Gold Reserve Share Surges 6 Percentage Points in Six Months

According to updated data from Deutsche Bank analyst Michael Hsueh last Friday, based on current spot gold prices, the share of gold in global foreign exchange plus gold reserves has risen from 24% at the end of June this year to 30%. This leap in scale is unprecedented, taking only a few short months.

Meanwhile, the dollar's share under the same metric has dropped from 43% to 40%. This means the gap between gold and the US dollar has narrowed from 19 percentage points to 10 percentage points—almost halved.

The Deutsche Bank team further estimates that for gold to equal and surpass the share of the dollar, gold prices would need to rise to above $5,790 per ounce—assuming gold holdings remain unchanged. At that point, gold and the US dollar would each account for 36% of global reserve assets.

Central Banks’ Willingness to Increase Holdings Continuing to Strengthen

As early as this July, Deutsche Bank had explored whether central bank gold buying might become a constraint on gold prices. The conclusion at the time was negative. Data shows that central banks' preference for gold only continues to strengthen.

A World Gold Council survey conducted between February 25 and May 20 this year found that the proportion of central banks planning to increase gold holdings rose from 29% last year to 43%. Even more noteworthy, 95% of reserve managers expect global central bank gold holdings to increase in the next 12 months—a sharp rise from 81% last year.

The starting point of this trend can be traced back to November 2022. At that time, gold prices hit a ten-year low, but it was at this point that central banks began buying gold at the fastest pace in 55 years. This shift came several months after the US weaponized the dollar due to the Russia-Ukraine conflict and is seen as the largest de-dollarization move since the end of the Bretton Woods system. Gold prices have risen steadily since then.

Measurement Standard: Foreign Exchange Reserves Rather Than Total Assets

Deutsche Bank emphasizes that when discussing gold's share in central bank assets, the measurement criteria should be clear. Compared to total central bank assets, the proportion of gold in foreign exchange plus gold reserves is more meaningful, as these are the only assets denominated in foreign currency and can be used to defend the local currency.

Take the European Central Bank as an example. As of the end of September, gold accounted for 80% of its foreign exchange plus gold reserves, but only 18% of its total assets. By the end of 2024, the ECB's total assets will stand at 6.4 trillion euros, of which 4.5 trillion euros (71%) are “euro-denominated securities held by eurozone residents,” which are denominated in local currency.

The situation is similar for the United States. As of the end of September, gold accounted for 96% of US foreign exchange plus gold reserves, but only 15% of total assets.

Therefore, the Deutsche Bank team believes that reserve managers are more likely to evaluate their gold holdings by the proportion of gold in foreign exchange plus gold reserves, since only this portion can be used for currency defense if necessary.

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