European Central Bank: Gold Has Replaced the Euro as the World's Second Largest Reserve Asset

According to the European Central Bank (ECB), driven by record-breaking purchases and soaring gold prices, gold has surpassed the euro to become the second-largest reserve asset held by global central banks.

A report released by the ECB on Wednesday showed that gold accounted for 20% of global official reserves in 2024, surpassing the euro's 16% and trailing only the US dollar's 46%.

"Central banks worldwide continued to accumulate gold at a record pace," the ECB stated in the report. It is understood that global central banks purchased over 1,000 mt of gold for the third consecutive year in 2024, accounting for one-fifth of the world's annual production and doubling the average annual purchases of the 2010s.

Global central banks' gold reserves are approaching the historical highs seen during the post-World War II Bretton Woods system era. Prior to 1971, global exchange rates were pegged to the US dollar, which in turn was convertible into gold at a fixed rate.

According to the latest data from the ECB, global central banks' gold reserves peaked at 38,000 mt in the mid-1960s and have now climbed back to 36,000 mt in 2024.

"Global central banks currently hold almost the same amount of gold as they did in 1965," the report stated.

According to data from the World Gold Council, major gold buyers last year included China, India, Turkey, and Poland.

Gold prices rose by 30% last year, one of the reasons for the surge in gold's share of global foreign exchange reserves. So far this year, gold prices have risen by a further 27%, hitting a record high of $3,500 per ounce.

"This volume of reserves, combined with high prices, has made gold the world's second-largest reserve asset by market value in 2024, trailing only the US dollar," the ECB said.

Although gold does not generate interest and has high storage costs, it is regarded by global investors as the ultimate safe-haven asset, highly liquid, free from counterparty risk, and less susceptible to sanctions.

In recent years, due to concerns over geopolitical instability and US debt levels, global central banks have begun to reduce their reliance on the US dollar.

The trend of de-dollarization has accelerated further since the outbreak of the Russia-Ukraine conflict, catalyzed by the US-led Western countries cutting off Russia's access to global financial markets.

Following the full-scale escalation of the Russia-Ukraine conflict in 2022, the West froze approximately $280 billion of the Russian central bank's overseas assets.

The ECB pointed out that central banks' gold purchases appear to be seen as a hedge against sanctions, such as the freezing of financial assets.

In the past, gold typically became cheaper when the real yield on other assets rose, but this long-standing correlation has been broken since early 2022. Investors now view gold more as a tool to hedge against political risks rather than merely as a tool to combat inflation.