Shifting Composition of Global Forex Reserves
A fascinating chart shared by William Middlekoop on X shows how central banks across the world are rebalancing their foreign exchange reserves. The blue line tracks the percentage of reserves held in US dollars, which has dropped from 66% to about 58% over the past decade. This indicates a gradual but clear move away from the dollar as a reserve currency.

The Rise of Gold in Central Bank Portfolios
What’s more interesting is the role of gold. The golden line on the chart shows the proportion of forex reserves held in gold rising from 8–9% to about 20%. This rise is significant because it signals a deliberate effort by central banks to hedge against dollar risk and diversify their reserve assets.

Historical Perspective and Future Outlook
Historically, in the 1970s, gold comprised more than 40% of forex reserves. While we are currently at 20%, there’s a growing possibility that we could return to those levels in the coming decade. If that happens, it implies a steady and strong source of demand for gold—one that is not speculative in nature but comes from sovereign entities.

Implications for Gold Prices
If this transition continues, the equilibrium in reserve asset allocation could push gold prices much higher over time. With dollar dominance slowly declining and alternative reserve compositions gaining favor—including the yuan, ruble, and gold—the long-term case for gold remains strong, especially as a strategic reserve asset.

Let me know your thoughts on this shift. Do you think gold will reclaim its old prominence in central bank reserves?

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