Central Banks Accumulate Gold, But Not As Inflation Hedges

Central banks around the world are buying gold in increasing amounts, but not because they expect inflation to rise. In fact, according to a recent report by the European Central Bank (ECB), the price of gold has climbed 60% in 2025 and 30% in 2024, largely due to valuation effects.

The ECB's annual report on the international role of the euro put gold at 27% of total official foreign reserves at end-2025, surpassing US Treasuries at 22%. However, when recalculated at end-2023 gold prices, gold's share drops to 16%, level with the euro.

The ECB also notes that gold has drawbacks as a reserve asset, including volatile price fluctuations, no interest payments, and high storage costs. Additionally, its supply does not stretch on demand when liquidity is needed.