Gold is now the world’s second-largest reserve asset — but central bank appetite is waning

An employee arranges gold bars at the Italpreziosi SpA precious metals refinery plant in Arezzo, Italy, on Tuesday, May 6, 2025.

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Central banks’ growing appetite for gold meant that the precious metal was the second-largest global reserve asset in 2024, according to a European Central Bank report out Wednesday — but analysts suggest some institutions may be nearing their fill.

Central banks’ gold stockpiles are close to levels last seen in the 1960s. Combined with gold’s soaring price, it is now second only to the U.S. dollar as their biggest reserve holding in value terms, the ECB said in its analysis Wednesday.

In 2023, gold and the euro were roughly level at around 16.5% as a share of global official reserves on average, a CNBC calculation of ECB data showed. In 2024, that shifted to 16% for the euro and 19% for gold — with the U.S. dollar accounting for 47%.

Central banks amass liquid assets such as foreign currencies and gold as a hedge against inflation and to diversify their holdings. It also allows them to sell these reserves to support their own currency in times of stress. Gold is seen providing long-term value and resilience through volatility, and central banks now account for more than 20% of its global demand, up from around a tenth in the 2010s.

The ECB said survey data had found gold was increasingly attractive to emerging and developing countries that were concerned about sanctions and the potential erosion of the role of major currencies in the international monetary system.

Gold prices have set a string of fresh record highs over the last few years, including in 2025. A stunning rally has turned to choppiness in recent months, as global markets have been rattled by fast-changing U.S. tariff policy.

A turning point for the precious metal came around the time of Russia’s full-scale invasion of Ukraine in February 2022, which combined with spiking inflation and expectations of rising interest rates, spurring a flight to so-called safe haven assets. Geopolitical and economic uncertainty has remained elevated consistently since then.

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Many of the tailwinds that have propelled gold still remain.

“Investors should ensure portfolio diversification and hold sufficient exposure to gold and hedge funds” with further turbulence in stocks expected, Mark Haefele, chief investment officer at UBS Global Wealth Management, advised clients in a note last week.

But there are signs that central bank purchases may cool in the months ahead.

The institutions “have played a key role in the gold rally and will probably continue buying gold, albeit at a slower pace than in the past couple of years,” Hamad Hussain, climate and commodities economist at Capital Economics, told CNBC.

“Indeed, the perception of gold as hedge against global fiscal, inflationary, and geopolitical risks supports the case for central bank reserve managers to allocate a greater share of their portfolio to gold. Recent doubts over the dollar’s safe-haven status could also boost the attractiveness of both gold and the euro as reserve assets over the coming years,” Hussain added.

The rate of central bank gold purchases fell 33% quarter-on-quarter in the first three months of the year, according to data from the World Gold Council analysed by bank ING, while Chinese purchases notably slowed.

“Given the strong run in gold prices, the momentum in gold buying could slow. But on a long-term basis, the uncertain geopolitical backdrop and desire for diversification will support the accumulation of gold as reserves,” Janet Mui, CFA, head of market analysis at RBC Brewin Dolphin, told CNBC.

“As the U.S. wants to take a more isolationist approach in trade, it makes sense for central banks of its key trading partners to diversify their reserves away from the U.S. dollar.”

Though central bank demand has risen, the majority of gold demand — 70% — comes from jewellery and investment, the ECB figures showed.

According to the ECB’s own report, the impact of geopolitics and demand on gold prices going forward will “depend on the stickiness of gold supply.”

“It has been argued that gold supply has responded elastically to increases in demand in past decades, including through strong growth in above-ground stocks,” it said.

“Therefore, if history is any guide, further increases in the official demand for gold reserves may also support further growth in global gold supply.”