Gold Eclipsing U.S. Government Debt

News that central banks are holding a larger share of gold than of American government debt sounds a cautionary note for the dollar’s standing as the world’s reserve currency. The finding that gold makes up some 27 percent of central bank holdings, versus 22 percent for Treasuries, is being traced by the European Central Bank to “geopolitical tensions.” It’s more accurate to see the news as a vindication of a role for gold in the world monetary system.Central banks have been ratcheting up their holdings of gold for some years now, the ECB reports. The trend accelerated after Russia in 2022 invaded Ukraine and a sanctions regime was imposed on Moscow. That attempt to hobble the Russian economy by “in effect weaponizing finance and the greenback itself,” as these columns cautioned, led some nations, especially those outside of the West’s political orbit, to look for alternatives to the dollar. “Strong central bank demand for gold,” the ECB says, means that acquisitions by these financial institutions are running “higher than historical norms,” with banks adding some 850 metric tons of the monetary metal in 2025 alone. That is a little less than the 1,000 metric tons acquired each year between 2022 and 2025, the ECB adds, though press reports have suggested that not all of Communist China’s gold gains are being disclosed to the public. Over the course of last year, the ECB says, Poland has emerged as the world’s “largest official sector purchaser” of gold, acquiring some 100 metric tons. Central banks of Kazakhstan, Brazil, and China were also among the top institutions acquiring gold. Since the Ukraine war started, the ECB reports, China has added some 350 metric tons of gold, while Poland has added 320 metric tons, and India has added 130 metric tons. Turkey added 220 tons of gold in these years, but has also “sold or loaned out” about 130 metric tons “to defend its currency, mitigate soaring energy import costs and manage economic fallout,” the ECB says. Russia, too, has been reducing its gold holdings in part “to fund its ongoing war against Ukraine,” per the ECB. Adding gold, the ECB says, reflects “efforts by some central banks to strengthen balance sheet resilience amid rising geopolitical risks.”America has the world’s largest reserve of gold with some 8,000 metric tons of the monetary metal. In all, central banks are holding more than 36,000 metric tons of gold, the Financial Times reckons. This means, as the FT puts it, that “the world’s central banks are hoarding almost as much gold as during the peak of the Bretton Woods era.” That was the period in which the dollar was convertible into gold at the legal rate of a 35th of an ounce.Since then, the dollar’s value has plunged to less than a 4,400th of an ounce. That points to a caveat in the ECB’s findings on gold. The surge in gold’s share of central bank holdings, per the ECB, “largely reflects valuation effects.” The falling value of the dollar, and other fiat currencies, “mechanically increases the share of gold in total official foreign reserves,” the ECB says. By looking at 2023 values, central banks hold more Treasuries than gold, the ECB says. The ECB says “gold faces limitations as an official reserve asset compared with the major fiat currencies” because its “price is volatile,” its supply “is not fully elastic,” and it “does not adjust seamlessly to shifts in international demand for liquidity.” Ergo, it’s not the gold that’s gaining value. It’s the dollar that’s losing value. It’s a moment to start returning to the standard in which currencies are defined as a fixed weight of, and convertible into, gold.

Gold Eclipsing U.S. Government Debt

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