Eric Sepanek
SBC Founder
Eric Sepanek is the founder of Scottsdale Bullion & Coin, established in 2011. With extensive experience in the precious metals industry, he is dedicated to educating Americans on the wealth preservation power of gold and silver.
Gold now accounts for 16% of foreign exchange reserves, signaling a sharp uptick in holdings. The yellow metal officially supplanted the Euro as the second most widely held asset. Although stockpiles are rising across the world, the Eastern Hemisphere accounts for a disproportionate amount of this increase. At the same time, shares of USD in global central bank reserves dropped to a new low of 58%. This trend reflects widespread repositioning as governments pursue de-dollarization and enhance their gold holdings.
Declining Dollar Reserves
The dollar still maintains its leading position as the most widely held reserve asset, but the greenback is losing its advantage. Even the International Monetary Fund (IMF) has warned that the “US dollar continues to cede ground to nontraditional currencies in global foreign exchange reserves.” At the height of demand, USD accounted for over 70% of foreign reserves. That peak was hit in the early 2000s. In the past 24 years, the dollar’s share has dipped by 17%.
https://www.imf.org/en/Blogs/Articles/2024/06/11/dollar-dominance-in-the-international-reserve-system-an-update
Gold’s Future Shimmers
During the same time frame, gold skyrocketed from under 10% of foreign exchange reserves to 16%, representing a 60% increase. Throughout most of the early 2000s, nations were net sellers of gold, preferring to invest in currencies. This trend reversed abruptly following the Global Financial Crisis of 2008.
Since then, gold has comprised a steadily increasing share of central bank reserves. This modern-day gold rush is mirrored in record-shattering gold demand from central banks. These national investors hit peak buying levels in 2022, 2023, and the first half of 2024. Experts such as the World Gold Council (WGC) forecast this demand to only ramp up in the coming years.
Eastern Hemisphere Heats Up
Analysts highlight the rising share of gold in the Eastern Hemisphere, most notably those emerging economies making up the growing BRICS coalition. A combination of biting Western sanctions, regional power ambitions, and focus on local currencies has made these countries uniquely focused on snubbing the dollar and upping their gold holdings.
For example, China and Russia have elevated their reserves by 393.2% and 443.2%, respectively. Recently, the People’s Bank of China (PBOC) launched gold buying quotas while Vladimir Putin’s finance ministry announced plans to increase daily gold purchases by 700%. It’s important to note this preference for gold over the dollar isn’t only held by adversaries. Plenty of US allies such as Poland and Turkey have been following a similar pattern.
Dollar Wanes as Gold Gains
The global trend of moving away from the US dollar in favor of physical gold is reflected in the contrasting performance of these two assets. While gold prices continue to climb to new peaks, the dollar is losing strength. In the wake of the Federal Reserve’s latest rate cuts, a key economic move, gold surged toward $2,700, and the dollar faltered. The economic and geopolitical factors driving this divergence are expected to continue. In fact, experts are already increasing their gold price predictions while warning about dollar weakness.
Investors Encouraged to Follow Central Banks
This is significant for investors since most portfolios and retirement accounts are heavily tied to dollar-based assets. More and more economists and financial institutions are advising investors to take a cue from central banks by reducing their dependence on the USD and diversifying into physical gold. Recently, Bank of America advised retail players to buy gold like central banks. Goldman Sachs struck a similar chord by telling investors to go for gold.
“The bigger central banks…and nations…are buying a ton of gold. Take a page out of their book.”– Eric Sepanek, founder of Scottsdale Bullion & Coin