The Shift in Global Financial Reserves
Over the years, global financial reserves have been kept in a variety of assets—gold, US dollars, euros, yen, and others. Until the 1970s, central banks around the world held over 50% of their reserves in gold. The US dollar and British pound made up smaller shares. However, in the 1970s and 1980s, this changed. Gold’s share in reserves dropped steadily, and most reserves moved into US dollars and, later, euros. At one point, gold made up just about 10% of global reserves.
A Comeback for Gold Since 2015
In recent years, especially after 2015–16, central banks have been increasing their gold reserves again. Today, gold accounts for about 21% of total global reserves. While still lower than the past, this is a strong reversal of the long-term downtrend. The US dollar remains dominant at 46%, and the euro sits at 16%, but gold is slowly gaining back attention. This rise suggests that central banks want to reduce overdependence on paper currencies.
What This Means for Gold Prices
If the global gold reserve allocation goes from 20% to 30% in the coming decade, central banks would need to buy tens of thousands of tonnes more gold. This is likely to push gold prices higher. The global gold supply, however, is limited. Around 3,000 tonnes of gold is produced every year, and that number isn’t growing much. Mining and refining gold takes time and has capacity limits, with only around 12% growth possible each year.
Rising Demand from Central Banks and Retail Buyers
Earlier, central banks used to buy 400–500 tonnes of gold per year. Now, they are purchasing around 1,000–1,200 tonnes annually. At the same time, countries like China and India continue to see strong demand for gold among their people, using 700–800 tonnes each year. This increase in demand is not matched by supply. As a result, gold prices are rising and may continue to rise until this gap is balanced.
How Reserve Ratios Can Shift Without Buying
There are two ways for a country’s gold reserve percentage to increase: either by buying more gold or by the price of gold going up. If the total reserves remain the same but gold prices double, then the percentage of gold in the reserves automatically increases. This is another reason why rising gold prices can satisfy central banks without needing to physically buy more.
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