Gold Rises Again, Surpassing the Euro, Challenging the Dollar.
Gold has not only become the hottest asset of the year but also gained prominence in international reserves. According to data from media reports on Friday, central banks around the world have been buying gold in large quantities since 2009. Coupled with the rising gold prices, its share in global international reserves has been steadily increasing. By the end of 2023, gold’s share of global reserve assets had climbed to 18%, surpassing the Euro’s 16% share.
Looking at the proportion of foreign exchange reserves excluding gold, since the launch of the Euro in 1999, the US Dollar’s share of global reserves has slowly declined from its peak of 72% in 2001 to 58% in 2023.
Analyzing the distribution of various reserve currencies from 1899 to 1935 (including legal tender and gold) and complete distribution data since 1950 reveals:
Besides showing the gradual decline of the US Dollar’s dominance, it is more important to reveal the historical balance between gold and legal tender.
In the international monetary system, the dominant position originally belonged to gold, not the US Dollar.
Even during the period when the Pound Sterling was considered the world’s reserve currency, gold was far ahead in international reserves.
Focusing only on gold and the US Dollar, it can be observed that the two have diverged.
As shown in the graph above, the US Dollar’s share of total reserve assets had dropped to 48% by 2023. Analysis suggests that this is due to declining trust in “credit assets” (legal tender), concerns about asset bubbles, escalating conflicts, and inflation fears, while the share of gold has been expanding.
Estimating official gold reserves, including undisclosed gold purchases by central banks, gold’s share of total reserves had risen to 18% by 2023, significantly higher than the 11% in 2008, surpassing the Euro, which had remained stagnant at 16%.
Analysis suggests that given the various problems plaguing legal tender, the possibility of gold surpassing the US Dollar and becoming the world’s top reserve asset cannot be ruled out in the next decade:
Gold is at the beginning of a multi-year bull market because trust in “credit assets” is currently excessive, leading capital to flow from national currencies, bonds, and stocks to gold. The increasing share of gold in international reserves reflects this trend.
