Dollar’s share of world reserves is falling, many countries see gold as a safe asset: Report
Major banks around the world may continue to increase their gold reserves amid global uncertainty, as revealed in a recent report by Quantum Mutual Fund.
The report pointed to a trend of continued investment in gold and holdings by various central banks, which is expected to continue this year due to increased conflicts in the Middle East, upcoming elections in the US and Europe, and the fragmentation of the global economy.
“The trend of investing in gold and diversifying reserves continues. We believe this trend is likely to continue this year amid political uncertainty in the Middle East,” the report said.
According to the report, these factors continue to make gold an attractive option for central banks that aim to reduce reliance on the US dollar, which has faced challenges from growing US debt and budget deficits. As the dollar’s share of world reserves declines, many countries see gold as a safe haven asset.
The report also highlighted that “Fundamentally, the ongoing deficit and unending debt in the US is gradually reducing reliance on the dollar as seen in the dollar share of global reserves. Given the lack of alternatives, gold has been the main beneficiary of this diversification trend”.
It also noted that the medium-term outlook for gold remains strong, bolstered by economic conditions in the US and fluctuating global investor sentiment. Gold prices rose to a historic high of USD 2,790.41 per troy ounce on October 31, 2024, following a rally that began in late September.
Despite some setbacks, the report noted that gold has shown resilience, mainly due to interest policies in the US and growing concerns about economic recovery. Beyond immediate price gains, global risks continue to drive investor interest in gold as a hedge against volatility.
The report noted that a combination of central bank demand, political tensions, and economic uncertainty suggest that gold will likely remain a favored asset, providing stability in a turbulent global environment.
