Central banks boost gold holdings amid FX concerns

by Naomi Tajitsu and Jack Ryan

The “weaponization” of foreign exchange is posing a growing headache for central bank reserve managers, giving them more reason to boost their holdings of gold.

The share of managers who regard the geopolitical weaponization of FX reserves as an investment risk increased sharply to 49% in 2025 from 32% last year, according to a UBS Group AG survey of nearly 40 central banks completed last month. In 2023, the figure was 14%.

“Geopolitical risk is now very prominent in our survey,” said Philipp Salman, a strategist for central banks at UBS Asset Management, adding that gold has been the big winner as institutions look to hedge against risks posed by conflicts and deteriorating relations between some major economies.

Central bank purchases are a significant driver of a rally that has seen gold prices double since late 2022. The pace of buying picked up after Russia’s foreign currency reserves were frozen, highlighting the appeal of bullion as an asset that is difficult to seize. The trend helped gold overtake the euro as the second-largest asset in central bank reserves, trailing only the dollar.

“Gold is definitely seen as a way to reduce sanctions risk,” said Massimiliano Castelli, head of global sovereign markets at UBS Asset Management. “Because if you buy gold and eventually repatriate it, and put it into your country, it would be very difficult to target that asset with sanctions.”

The purchases look set to continue, with 52% of central banks in the survey saying they would like to add gold over the next year. Central banks expect the precious metal to generate better returns than any other asset class over the next five years, according to survey results.

Bullion’s value as a hedge against geopolitical turmoil and inflation were seen as the key drivers of increasing gold allocations, with other central banks citing a desire to diversify reserves and reduce their reliance on the dollar.

The greenback’s share of global currency reserves has been declining, falling to below 60% from around 70% in 2000, International Monetary Fund data shows. One of the biggest winners from the shift has been the euro, which now accounts for around 20% of reserves.  

US President Donald Trump’s policies have facilitated the shift away from the dollar, said Castelli. It was the currency sold the most by reserve managers over the past year, while the euro was the biggest beneficiary of increased allocations, the UBS survey showed. 

“People are wondering if it makes sense to rely only on the dollar as a safe haven, or if they should also rely on bunds and maybe other assets,” he said. “This is something new.”

Still, there is no obvious alternative. Most survey respondents expect the greenback to keep its status as a global reserve currency in the coming years, given the deep liquidity of the dollar and US Treasuries.

For now, the reallocation shift away from the currency is “a picture of evolution rather than an earthquake,” Castelli said. “It will take time to happen.”

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