Geopolitics Shifts Focus from US Dollar to Gold Reserves

The US dollar's dominance in global finance is facing increased pressure due to rising geopolitical tensions. According to a recent report by the European Central Bank, central banks have been accumulating gold reserves at an unprecedented rate, with the gold share in global official reserves reaching 27% at the end of 2025.

This increase is not solely due to the rise in gold prices but also reflects the growing concern among central banks about geopolitical risks. The report highlights that some of the largest gold buyers face greater external geopolitical risk and are seeking to diversify their portfolios by holding assets that are less exposed to potential sanctions.

The study, led by Arslanalp et al., argues that geopolitics changes the way reserve managers evaluate the characteristics of different assets. Gold is not a liability issued under US jurisdiction and therefore poses less geopolitical risk compared to US Treasury securities.