Gold Reserves: The Silent Shift in Global Finance

Gold vs. Forex in Global Reserves

Many countries are gradually increasing the share of gold in their total foreign exchange (forex) reserves. This trend is becoming particularly common among countries outside the U.S. that engage in trade using foreign currency. When importing and exporting goods, these nations typically hold foreign currency as part of their reserves. However, there is a notable shift toward accumulating more gold instead.

Source: Tol

Developed Countries Already Hold More Gold

In developed nations like Germany, France, and Italy, the proportion of gold in total forex reserves is already significant, ranging from 60% to 70% (see the image). These countries do not need to maintain high levels of foreign currency because their own currencies are strong and easily exchangeable. Consequently, gold constitutes a major portion of their reserves.

Rising Gold Holdings Following 2022 Events

A significant shift began after 2022, when Western countries froze Russia’s foreign assets. In response, many nations started increasing their gold holdings. For instance, Russia’s gold reserves jumped from 5.2% to 32%. Egypt increased its holdings from 7% to 23.7%, Argentina from 4% to 17.5%, and Poland from 4.5% to nearly 17%. Similarly, India raised its gold reserves from 6.9% to 11.4%. These statistics reflect a clear trend of more countries relying on gold.

Trust Issues in the Global System

Countries are increasingly losing trust in the global monetary system. The freezing of Russia’s assets highlighted the risks associated with relying solely on U.S. dollars or euros. As a result, many nations are repatriating their gold. For instance, India recently brought back around 200 tonnes of gold from the Bank of England. This move signifies a broader global trend: countries desire to hold their gold within their own borders.

Gold May Regain Its Role in the Monetary System

This growing emphasis on gold could lead to changes in the global monetary system. Similar to the significant change that occurred in 1971, another transformation may be on the horizon. Starting in July 2025, gold will be classified as a Tier 1 asset under Basel III regulations. This will allow large banks to use gold for its full collateral value, compared to the 50% credit they previously received. This adjustment may encourage even more banks to increase their gold holdings.

Is gold a part of your portfolio yet? Do you think it’s time to increase your allocation? Share your thoughts in the comments below! If you found this blog helpful, don’t forget to SHARE it with your friends!

Watch the Video here

Become a WeekendInvestor