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In a development that reflects shifting priorities among central banks, gold has now overtaken the euro to become the second-largest foreign exchange reserve asset, according to a recent European Central Bank report.

While this shift might not come as a complete surprise given the increasing preference for gold in recent years, the implications are significant, reported The Financial Express.

For years, gold has attracted central banks as a reliable alternative to paper currencies. Though the US dollar continues to hold the lion’s share of global reserves at 46 per cent, gold’s share has risen to 20 per cent, surpassing the euro, which now accounts for 16 per cent of reserves. This changing composition signals a growing reliance on gold as a safe haven, especially in an uncertain economic environment.

Central Banks Accelerate Gold Buying Spree

The appetite for gold among central banks has grown considerably, especially over the past three years. Between 2022 and 2024, central banks collectively purchased over 1,000 tonnes of gold annually — a sharp jump compared to the 400-500 tonne average seen over the prior decade. Currently, global central bank holdings of gold have reached 36,000 tonnes, closing in on the record high of 38,000 tonnes set back in 1965 during the Bretton Woods era.

Among these holdings, the US Federal Reserve stands out with the largest stockpile of 8,133.46 tonnes, though it made no new acquisitions in Q1 2025. India, meanwhile, held 876.18 tonnes at the end of December 2024, added 3.42 tonnes during Q1 2025, and concluded the March quarter with a total of 879.60 tonnes.

Looking ahead, the enthusiasm for gold seems far from over. According to a recent World Gold Council survey, 95 per cent of central banks anticipate adding to their gold reserves within the next year. Interestingly, 43 per cent of respondents indicated their gold holdings would increase within the same timeframe.

A Traditional Safe Haven Amid Growing Global Risks

The renewed interest in gold is rooted in its historical role as a hedge against economic instability and geopolitical uncertainty. As tensions rise and traditional fiat currencies come under strain, gold’s appeal as a stable store of value strengthens. While the dollar remains the dominant reserve currency, data from the IMF suggests its supremacy is gradually eroding.

In hindsight, the aggressive gold purchases initiated in 2022 appear to have been a calculated and prudent strategy. Whether this move continues to yield long-term benefits for central banks will depend on how global events unfold in the coming years.

Currently, gold prices sit at $3,350 per ounce or approximately Rs 10,231 per gram, just 4 per cent below the record high of $3,500 reached on April 22. Since its rally began in October 2022, when prices were around $1,500, gold has surged by 120 per cent. However, some analysts suggest the metal may be entering a phase of consolidation or correction unless new catalysts emerge. After consecutive years of strong performance — with gains exceeding 20 per cent annually in 2023 and 2024 — gold has already risen 27 per cent so far in 2025.

Geopolitical Unrest and Tariffs Continue to Fuel Gold’s Rise

A series of recent developments have further supported gold’s rally in 2025. Among the key drivers are the trade tensions triggered by Trump’s new tariffs, which have sparked fears of a wider trade war with significant economic repercussions. The impact of potential reciprocal tariffs, scheduled to take shape in the second half of 2026, remains uncertain.

Simultaneously, geopolitical conflicts are escalating, particularly the prolonged Israel-Iran crisis. If the United States were to become directly involved, it could deliver a severe blow to global markets, reaffirming gold’s status as one of the few assets capable of weathering extreme geopolitical shocks.

Is It the Right Time for Retail Investors?

For individual investors, the question remains whether to invest in gold at current elevated levels. Financial planners typically recommend maintaining about 10 per cent of a portfolio in gold as a hedge. Even though prices are hovering near their peak, systematic investment in gold can still be a wise strategy for long-term goals. As with all assets, some short-term volatility and corrections are possible, but in times of sustained economic uncertainty, gold can provide a reliable buffer for investment portfolios.