• A net 30% of central banks plan to increase gold holdings over the next decade, driven by geopolitical risks.
  • Many are reducing U.S. dollar exposure, shifting reserves toward gold and the euro.
  • AI adoption is accelerating among central banks, aiding portfolio optimization.

Reserve Shift Accelerates

More central banks now intend to cut their U.S. dollar holdings while boosting allocations to gold and the euro, according to a recent survey. A net 30% of respondents expect to raise gold reserves, a trend increasingly tied to geopolitical tensions rather than traditional financial factors.

"Geopolitical risk is becoming a primary driver of reserve diversification," said one central bank official familiar with the matter. The shift marks a departure from past decades when dollar dominance went largely unchallenged.

Demand for euro-denominated assets is also rising, as central banks seek to balance their portfolios. The euro's relative stability and the depth of European bond markets make it an attractive alternative, analysts say.

Gold's Resurgence

Gold has emerged as the preferred non-dollar asset, with many authorities treating it as a hedge against sanctions and currency shocks. "We are seeing a structural increase in gold's role as a reserve asset," noted a Deutsche Bank strategist. This has supported gold prices, which have rallied on sustained central-bank buying.

Emerging-market economies are leading the charge, though some developed nations are also adjusting their reserves. "The U.S. and China are seen as the most attractive investment markets, but reserve managers are carefully rebalancing," the strategist added.

AI and Modernization

Central banks are increasingly adopting AI for risk assessment and portfolio optimization, which could accelerate these trends. "AI tools allow us to model scenarios and adjust allocations more dynamically," a reserve manager said.

Implications

The gradual de-dollarization could support gold prices over the medium term and introduce volatility in currency markets. However, the dollar is likely to remain dominant due to its liquidity and the depth of U.S. financial markets.

*Correction: An earlier version misstated the percentage of central banks planning to raise gold holdings; the correct figure is a net 30%."