Central banks ditch US dollar for gold, global reserves shift: Report

Central banks worldwide are cutting their US dollar holdings and buying gold, according to a Deutsche Bank report. The dollar's share in global reserves has dropped to 40%, while gold's share has nearly doubled to 30% in the last four years.

Central banks across the world are reducing their reliance on the US dollar while increasing gold holdings, with gold's share in global reserves rising sharply in recent years, according to a report by Deutsche Bank Research Institute.

The report said the shift marks a reversal of long-standing trends in global finance, with the dollar's dominance gradually weakening. "The share of the USD in global central bank reserves has dropped sharply from around 60% at its peak to just 40% today," it noted.

At the same time, gold has been gaining prominence in central bank portfolios. "Gold's share in global central bank reserves has doubled in the past four years to nearly 30% today," the report said, highlighting a significant shift in reserve composition.

Importantly, the report pointed out that the shift away from the dollar is not being redirected into other currencies, but into gold. "The dollar's losses as a share of central bank reserves have not gone to other fiat currencies, but to gold," it said.

Emerging Markets Lead Gold Purchases

The report attributed this trend largely to actions by emerging market economies. "All central bank purchases are occurring in emerging markets," it said, adding that these countries have been steadily accumulating gold over the past decade.

Geopolitical Tensions Driving the Shift

According to the report, this shift is being driven more by geopolitical developments than purely economic factors. "The share of gold in central bank reserves is not driven by the global monetary system, but by the global geopolitical environment," it said.

The report described the current phase as a "return of history," noting that the global order is moving away from the stability seen in the 1990s and early 2000s. "The end of history has come to an end," it said, pointing to rising geopolitical tensions and changing alliances.

It further noted that emerging economies are increasingly turning to gold to protect their reserves in a more uncertain world. Gold, unlike dollar assets, can be held domestically and is less exposed to sanctions or external restrictions.

Future Outlook and Implications

Looking ahead, the report suggested that the trend could continue, with gold gaining an even larger share in global reserves. It said a "return of history" scenario could see gold's share rise to at least 40% of global reserves.

The report also outlined potential implications for gold prices, noting that strong demand from central banks could push prices significantly higher in the coming years under certain scenarios.

Overall, the findings point to a structural shift in global reserve management, with central banks reassessing traditional reliance on the US dollar and increasing their exposure to gold in response to a changing geopolitical and economic landscape.

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