Central Banks Rebalance Power with Gold’s Golden Comeback

Gold prices reached a record high on Sunday as central banks worldwide continued to increase their holdings of the precious metal amid a global shift toward diversification of foreign reserves. China’s central bank, for instance, extended its gold-buying streak to 10 consecutive months in August, adding 60,000 ounces to its reserves, which now total 74.02 million ounces. This contributed to the price of Comex gold futures rising to $3,639.8 per ounce, a 37.9% increase this year [1].

The move aligns with a broader trend seen across central banks, which are increasingly viewing gold as a stable asset against the volatility of the U.S. dollar and the risks associated with geopolitical tensions. According to the World Gold Council, global official gold reserves rose by 166 tonnes in the second quarter of 2025, with annual buying surpassing 1,000 tonnes for the third consecutive year since 2022 [1]. In a June survey conducted by the World Gold Council, 95% of central banks expected to increase gold reserves over the next 12 months—the highest percentage since the survey began in 2019 [1].

The growing preference for gold is also being driven by a decline in the share of the U.S. dollar in global foreign exchange reserves. While the dollar remains a dominant currency, its share is currently about 60% of total reserves—within the middle of its 50-year historical range. Gold, by contrast, is seen as a more secure asset, particularly for countries seeking to avoid the risks of sanctions or geopolitical instability [2]. Analysts suggest that the shift toward gold reflects a long-term rebalancing of global monetary systems, with central banks using the metal as both a hedge and a means of cross-border settlement [2].

In addition to China, other countries have begun repatriating their gold holdings. In 2024, India announced the return of approximately 100 tonnes of gold from the United Kingdom. A 2024 study also found that 68% of central banks now store their gold onshore—up from about 50% in 2020. This trend reflects growing concerns over the physical security and accessibility of gold stored overseas, especially in the wake of the G7's decision to use frozen Russian assets to fund reconstruction in Ukraine [2].

The increasing demand for gold is also influencing the distribution of gold trading centers. While London and New York remain dominant, exchanges in China, including the Shanghai Futures Exchange and the Shanghai Gold Exchange, are gaining traction. Although these markets face challenges in terms of product diversity and international participation, they offer alternative options for countries seeking to diversify away from Western financial systems [2].

The long-term implications of this shift are significant. As geopolitical risks remain elevated, gold is likely to play an even greater role in central bank portfolios. The diversification of gold holdings is expected to reflect a broader realignment of global financial power, with storage locations and trading centers gradually shifting to better align with the current geopolitical landscape [2].

Source:

[1] China extends gold-buying streak as central banks seek US dollar alternatives (https://www.scmp.com/economy/china-economy/article/3324726/china-extends-gold-buying-streak-central-banks-seek-us-dollar-alternatives)

[2] Central banks are turning back to gold (https://www.omfif.org/2025/09/central-banks-are-turning-back-to-gold/)