Gold's 27% reserve share overtakes Treasuries in historic shift

Gold has overtaken U.S. Treasuries as the largest central bank reserve asset, with ECB data showing bullion at 27 percent of reserves versus 22 percent for Treasuries.

"The international context that fueled gold's growth last year is back, and that should lift the price of gold to $5,400 per ounce over the next 12 months," said Giovanni Staunovo, analyst at UBS.

Gold climbed more than 1.5 percent to $4,640.40 on Friday, on track for a 5 percent weekly gain, as U.S. debt topped $40 trillion for the first time and the Treasury announced accelerated buybacks. China added nearly 20 metric tons of gold in July, its largest monthly purchase since October 2023. The metal had reached a high of $5,600 earlier this year before its worst quarterly performance since 2013 in the second quarter.

The shift reflects a structural rotation in reserve management. Central banks have been diversifying away from dollar-denominated assets as sovereign debt expands and currency debasement concerns persist. With UBS projecting $5,400 per ounce over the next 12 months and continued central bank accumulation, the implications extend beyond gold prices to Treasury demand and the dollar's reserve status.

The turning point came after the Federal Reserve's meeting at the end of July, when policymakers delivered a more dovish message than expected. That helped push real yield expectations lower and made gold more attractive by comparison. The last time gold traded above $5,000 was earlier this year, when it reached $5,600 before the second-quarter selloff — the metal's worst quarterly performance since 2013.

"It also tracks with why central banks keep rotating reserves out of Treasuries and into gold," said Diane Garrett, executive chairman and CEO of Hycroft Mining.

The $40 Trillion Debt Milestone

U.S. debt crossing $40 trillion for the first time, combined with the Treasury's accelerated buyback program, has reinforced the case for gold as a hedge against fiscal expansion. The Treasury's surge in long-term debt buybacks has raised concerns about borrowing costs, with the 30-year Treasury yield hitting a 19-year high. This dynamic — rising sovereign debt, elevated yields, and persistent inflation concerns — has broken the traditional inverse relationship between gold and Treasury yields.

The shift is not merely a price story. Physical gold carries no counterparty risk, which explains its appeal as sovereign balance sheets expand. Once gold enters the financial system through ETFs or allocated accounts, however, that risk returns — vaults depend on custodians and fund structures depend on the solvency of the institutions holding them. This has created demand for digital representations of gold that preserve zero-counterparty characteristics while adding liquidity and programmability, a niche that tokenized gold products are beginning to fill.

Central Bank Accumulation Continues

China's purchase of nearly 20 metric tons in July marks its largest monthly acquisition since October 2023, part of a broader effort to diversify holdings away from dollar assets. Large central bank purchases remove significant quantities of gold from the available market while confirming long-term institutional demand. The ECB data showing gold at 27 percent of reserves versus 22 percent for Treasuries confirms this trend is now measurable at the aggregate level.

The implications for the dollar are significant. As central banks continue to rotate reserves into gold, demand for U.S. Treasuries faces structural headwinds. This could keep upward pressure on Treasury yields and, over time, erode the dollar's dominance in global reserve holdings. For investors, the key question is whether this rotation accelerates or stabilizes. UBS's $5,400 target implies roughly 16 percent upside from current levels over the next 12 months, but the trajectory depends on whether fiscal expansion in the U.S. continues and whether the Fed maintains its dovish posture.

This article is for informational purposes only and does not constitute investment advice.