In the annual report on the international role of the Euro, the European Central Bank (ECB) said that although central banks' gold buying demand slowed down last year, along with the strong increase in gold prices, this buying volume contributed to bringing gold above US Treasury bonds, becoming the group with the largest proportion of global reserves.
Analysts say that thanks to the historic increase in gold prices, this precious metal accounted for about 27% of global reserve assets by the end of the year. By the end of 2024, gold holdings accounted for 20% of total global reserves. While gold demand increased sharply, US Treasury bond holdings fell to about 22% of total reserves, from 25% in 2024.
This development largely reflects the impact of valuation. Nominally, gold prices increased by about 60% in 2025 and 30% in 2024, thereby automatically increasing the proportion of gold in total official foreign exchange reserves.
If these valuation impacts are adjusted by using gold prices at the end of 2023, the weight of the euro is 16%, equivalent to the weight of gold is 16%, while the weight of US Treasury bonds is still significantly higher, at 26%" - analysts stated in the report.
In the year-end physical gold trend report, the World Gold Council (WGC) said that central banks have increased their official gold reserves by 863 tons, slightly down from more than 1,000 tons purchased each year in the previous 3 years.
The ECB believes that, besides its role as a diversification tool, central banks also consider this precious metal as a hedge against geopolitical risks.
Central banks buying more gold are also often located in areas facing higher external conflict risks. Since the Russia-Ukraine conflict broke out in 2022, China has bought more than 350 tons of gold, followed by Poland with 320 tons, Turkey 220 tons and India 130 tons.
In addition, Poland, with about 100 tons, is still the largest official buyer in 2025, followed by Kazakhstan, Brazil, China and Turkey" - ECB said.
Although gold has reached an important milestone, the ECB believes that this trend is difficult to maintain sustainably.
In the coming time, gold faces limitations when playing the role of official reserve assets compared to major legal currencies: gold prices fluctuate sharply, do not bring interest rates, and when held in physical form, storage costs are high. More importantly, gold supply is not completely elastic and cannot be flexibly adjusted according to changes in international liquidity demand" - analysts said.
Although the central bank's gold buying demand has slowed since the beginning of the year, experts believe the slowdown is not too large. WGC forecasts that central banks will buy about 850 tons of gold this year.
In an interview with Kitco News, Mr. Nitesh Shah - Head of Commodity and Macroeconomic Research at WisdomTree - said that the conditions driving the central bank to buy gold have not disappeared.
He added that 2022 was a turning point when the US and its Western allies used the USD as a tool to punish Russia after it launched a military campaign in Ukraine.
This trend has been pushed for a long time and that momentum will not end soon. Not only is the USD used as a sanctioning tool; the euro, yen and all G7 currencies are also used in a similar way when the assets of the Central Bank of Russia are frozen.
That creates motivation for other central banks to diversify and reduce dependence on these currencies. No one wants to hold a large amount of those currencies and then fall into a disadvantageous position against any G7 country," he said.
Mr. Ryan McIntyre - Chairman of Sprott Inc. - said that besides geopolitical instability, the need to hedge against public debt risks is also a reason why central banks are increasing their gold holdings.
He explained that gold is a superior reserve because it is not a debt obligation of any other party.
I will try to be as independent of other parties as possible," he said.
