Gold has overtaken US government bonds as the largest reserve asset held by central banks worldwide in a historic shift in global finance, according to the European Central Bank’s (ECB) latest report.

The report says that the precious metal accounted for approximately 27% of global official reserve assets at the end of 2025, compared with 22% for US Treasuries. This marks an important change in the composition of international reserves and highlights evolving perceptions of risk, security, and monetary stability in an increasingly fragmented geopolitical environment.

For decades, US Treasury securities served as the cornerstone of global reserve management. Central banks viewed Treasuries as the safest and most liquid assets available, supported by the size of the US economy and the dominance of the dollar in international trade and finance.

However, the ECB reported that central banks now collectively hold more than 36,000 tonnes of gold, approaching levels last seen during the Bretton Woods era, when gold-backed currencies formed the foundation of the global monetary system. Gold’s share of reserves rose sharply from 20% in 2024 to 27% in 2025, while the share of US Treasuries fell from 25% to 22%.

Despite this shift, dollar-denominated assets remain dominant overall, accounting for roughly 42% of global reserves. Nevertheless, gold’s rise represents a visible diversification away from traditional dollar-based holdings.

According to analysts, one of the most important drivers of gold accumulation has been growing geopolitical uncertainty. The freezing of Russia’s foreign reserves following its invasion of Ukraine in 2022 served as a wake-up call for many central banks, the analysts said. It demonstrated that foreign exchange reserves held in another country’s financial system could be subject to political decisions and sanctions.

Gold, by contrast, is a politically neutral asset. It carries no counterparty risk and cannot be frozen by a foreign government when held domestically. As geopolitical tensions continue to rise across multiple regions, central banks increasingly view gold as a strategic hedge against political and financial disruptions.

Central banks have been purchasing gold at an unprecedented pace. For three consecutive years before 2025, annual net purchases exceeded 1,000 tonnes. Although buying slowed slightly to 850 tonnes in 2025, demand remained historically strong.

Countries such as China, India, Poland, and Turkey have been among the most aggressive buyers since 2022. Their purchases reflect a broader trend of reserve diversification and reduced dependence on dollar-denominated assets.

Interestingly, the ECB also noted that Tether, the world’s largest stablecoin issuer, became the single largest buyer of gold in 2025, purchasing more than 100 tonnes.

Another major factor behind the gold rush, according to analysts, has been its extraordinary price appreciation. Gold prices have nearly doubled over the past two years, reaching a record high above $5,500 per troy ounce in January 2026.

Because reserve shares are measured by market value, rising prices increased gold’s weight within central bank portfolios. The ECB stated that valuation effects played a major role in gold overtaking Treasuries. Had gold been valued at 2023 prices, US Treasuries would likely have remained the largest reserve asset.

Growing concerns about US government debt levels have also contributed to diversification away from Treasuries, the analysts said. Persistent fiscal deficits and increasing Treasury issuance have raised questions about long-term debt sustainability.

At the same time, structural challenges in the Treasury market, including limited dealer balance sheet capacity and rising financing needs, have created concerns about future market stability. While Treasuries remain highly liquid, some reserve managers are seeking alternatives that are not tied directly to any government’s fiscal position.

Traditionally, one disadvantage of gold is that it generates no income, unlike Treasury bonds, which pay interest. However, declining Treasury yields and expectations of monetary easing have reduced the opportunity cost of holding gold.

As yields fall, the relative attractiveness of a non-yielding asset like gold improves, especially when investors expect geopolitical uncertainty and inflation risks to persist.

Despite its growing popularity, gold is not without limitations.

The ECB stated that gold remains a volatile asset whose price can fluctuate significantly. Unlike government bonds, it does not provide interest income. Physical storage, transportation, and security also impose costs on central banks.

According to analysts, if central banks continue reducing their Treasury holdings in favour of gold, demand for US government debt could gradually weaken. Lower structural demand may require higher yields to attract buyers, potentially increasing borrowing costs for the US government.

However, reports of the dollar’s decline may be premature. Dollar-denominated assets still represent the largest share of global reserves, and the US currency remains deeply embedded in international trade, finance, and capital markets.

The ECB report also highlighted growing international use of the euro. Issuance of euro-denominated international debt rose by 30% in 2025 to nearly €1 trillion, while foreign investors purchased approximately €850 billion of euro-area assets. These developments suggest that reserve diversification is not solely benefiting gold.

Gold’s rise above US Treasuries as the world’s largest reserve asset marks an important milestone in the evolution of the international monetary system. Driven by geopolitical tensions, central bank diversification, concerns over sanctions and sovereign debt risks, and a powerful rally in gold prices, central banks are increasingly viewing bullion as a strategic store of value.

While gold faces limitations related to volatility, storage costs, and lack of yield, its appeal as a politically neutral asset has rarely been stronger. The trend reflects a broader shift toward reserve diversification in a world characterised by rising geopolitical competition, economic uncertainty, and changing financial dynamics.