In William Shakespeare’s The Merchant of Venice, suitors of the heroine Portia had to choose between three caskets made of gold, silver and lead, with the condition that success in winning her hand depends on the casket that contains her picture. The Prince of Morocco, an ardent suitor, chose the golden casket and found a skull and a scroll that read: All that glitters is not gold;Often have you heard that told:Many a man his life hath soldBut my outside to behold:Gilded tombs do worms enfold. In the recent period, particularly since the freezing of Russia’s foreign assets of about $335 billion within days of the outbreak of the Russia-Ukraine war in February 2022, several central banks have chosen the way of the Prince of Morocco — never mind his exit from the contest for Portia — over that of Hamlet, the conflicted Prince of Denmark (to be or not to be!). According to the World Gold Council’s (WGC’s) survey published in June 2025, central banks have accumulated over 1,000 tonnes of gold in each of the last three years, significantly higher than the average of 400-500 tonnes over the preceding decade. Central banks’ gold reserves have risen past 37,000 tonnes, closing in on the historic peak of 38,000 tonnes in the mid-1960s in the post-World War II Bretton Woods fixed exchange rate system that was pegged to gold via the then gold-convertible US dollar. At this level, central banks hold more than 17% of the total amount of 216,265 tonnes of gold that has been mined in all of history and currently accessible globally. Central banks have purchased almost 1 in every 8 ounces of global gold mining. Their demand has exceeded all the inflows into gold-backed ETF investment products by more than five times. This drive to build up gold holdings in reserves is occurring in spite of the price of gold having surged by 30% since the beginning of 2025 and doubled in the past two years. A financial daily recently reported that central banks’ purchases of gold slowed to 415 tonnes in the first half of 2025 from 525 tonnes a year ago, deterred by elevated gold prices. Evidently, not all central banks have been so price-sensitive: it also reported that the Reserve Bank of India (RBI) bought “half a tonne of gold in the last week of June”, undeterred by high prices — the RBI’s gold holdings rose from 879.58 metric tonnes (mt) on June 20 to 879.98 mt on June 27, as given in its monthly bulletin. Reflecting central banks’ activism, gold has become the second most important reserve asset, accounting for 20% of global official reserves, outstripping the euro (16%) and second only to the US dollar. This represents not just a quest for a safe asset but also a strategic diversification of reserves to reduce reliance on the US dollar. Of the top ten holders of gold in official reserves — the US, Germany, Italy, France, Russia, China, Switzerland, India, Japan, the Netherlands — all the western economies were legacy holders at the beginning of the 21st century. By contrast, the top ten countries that have increased gold reserves in the recent period are China, India, Poland, Turkey, Singapore, Japan, Thailand, Hungary, Qatar and Iraq — mostly emerging market economies. Russia is not in this list because it is unique in that it used to be a major supplier to the world bullion market. Since the sanctions, however, the Central Bank of Russia has been buying gold from domestic mining companies. Russia, like China, holds its gold reserves domestically. This is another central bank trend that is emerging — more of them are preparing to store more bullion domestically as opposed to London and New York. This has reflected concerns about their ability to access gold stored overseas in the event of a crisis or in the case of sanctions, freezing and confiscation. In 2024, India repatriated 102 tonnes from the Bank of England to domestic storage, although it still holds gold in foreign institutions, including the Bank of England and the Bank for International Settlements. The Central Bank of Nigeria is also reported to have repatriated some of its holdings. More recently, Germany and Italy, the holders of the world’s second and third largest national gold reserves, respectively, are facing political pressures to move their gold out of the New York Federal Reserve. In 2013, Germany’s Bundesbank decided to store half of its gold reserves at home, moving 674 tonnes from Paris and New York. Currently, 37% of the Bundesbank’s gold reserves are stored in New York. Italy’s economic commentator Enrico Grazzini wrote in April this year that “leaving 43% of Italy’s gold reserves in America under the unreliable Trump administration is very dangerous in the national interest.” In the mid-1960s, France moved most of its overseas gold reserves to Paris after President Charles de Gaulle lost faith in the Bretton Woods system. The WGC has noted that its 2025 survey drew 73 responses, the highest since the survey commenced eight years ago. Central banks are clearly conveying a powerful signal about the geopolitical and overall economic uncertainty that has clouded the environment in which they operate and their outlook. A whopping 95% of respondents across advanced and emerging economies believed that global central bank gold reserves will increase over the next 12 months. Of the surveyed, 43% were of the view that their own gold reserves will also increase over the same period, with emerging economies more inclined to do so than advanced economy counterparts. None anticipated a decline in gold reserves. About 73% envisioned moderate to significantly lower US dollar holdings within the next five years. While 59% indicated that potential trade conflicts/tariffs matter in reserve management decisions, 69% were emerging economy respondents as against 40% from advanced economies. In a similar survey conducted by the ECB last year, motivations for increasing gold holdings among emerging and developing economies were cited as concerns about sanctions, expected changes in the global monetary system and desire to become less dependent on the US dollar for diversification and to hedge against geopolitical risk. Although the accelerated accumulation of gold by central banks will continue to make inroads into the dominance of the US dollar in the global monetary system, few would contend that gold will completely replace the dollar in the foreseeable future. Yet, it is sobering to note the path of history: even before the US dollar, it was the gold standard that was the anchor of the international monetary system since 1873. Countries across the world settled on gold as the basis of their money supplies. Exchange rates were pegged to gold. Non-industrial countries like India were on the gold exchange standard by their link with a gold-convertible currency, and this was considered superior to gold specie standards by John Maynard Keynes in his first book, Indian Currency and Finance. It was only with World War I that the reign of gold came to an end. So, is the challenger to the throne of the US dollar taking a bow again? Only time will tell. *This column is a sequel to ‘Exorbitant Privilege: Why the Dollar Still Reigns Despite Headwinds,’ which examined why, despite political and policy challenges, no true rival yet threatens the greenback’s dominance. Read that story here.
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