Why It’s Time for Financial Authorities to Reconsider Their Gold Hoards
Gold prices have surged by about 25% this year, with the metal now overtaking the euro as the second-largest reserve asset, according to the European Central Bank. Central banks—particularly those in emerging markets like China—have been ramping up purchases, driven by fears over U.S. sanctions, geopolitical instability, and President Donald Trump’s unpredictable tariff moves.
Recent surveys from the Official Monetary and Financial Institutions Forum (OMFIF) and the World Gold Council show strong appetite for gold among reserve managers. Nearly one-third plan to raise holdings soon, and 95% believe central bank reserves will continue to grow over the next year.
But is this heavy central bank buying rational, or is it building on a foundation of illusion?
The world’s four largest gold-holding nations—the U.S., Germany, Italy, and France—collectively hold around 16,000 metric tonnes of gold. That dwarfs annual global demand, which stood at about 5,000 tonnes in 2024. A fifth of that demand came from central banks alone.
These massive official reserves provide a structural boost to gold prices simply by being withheld from the market. If sold in a responsible, coordinated manner, they could cap or even reverse current price gains. Such monetisation could also alleviate serious fiscal pressures.
For example, with U.S. public debt around US$30 trillion, selling gold at current market prices could potentially generate over US$850 billion—small relative to total debt but meaningful in easing interest rate and financing pressures. France and Italy could each reduce national debt by over 5% through similar strategies, assuming their central banks could legally channel gold sale proceeds toward fiscal relief. In Europe, this might also help meet NATO’s new 5% GDP defense spending target.
Yet, central banks continue to sit on reserves that yield no income, incur storage costs, and no longer serve a formal role in the global monetary system. Monetising gold could turn dormant assets into usable capital.
The idea is not without precedent. In 1999, the Washington Agreement on Gold established coordinated limits on official sales to prevent market disruption. The IMF took similar steps during its 2009 post-crisis gold sales. These frameworks show that selling gold responsibly is not only feasible but beneficial when done strategically.
However, realpolitik remains a barrier. “Gold bugs” still cling to dreams of a commodity-based monetary order. Mining companies fiercely oppose large official sales, as seen in past resistance to IMF initiatives. Some developing countries might also resist due to economic reliance on gold exports. And Trump’s erratic economic policies continue to inject uncertainty.
Still, with surging debt and tightening fiscal space, governments should rethink why they’re clinging to gold that contributes little to national balance sheet liquidity. The recent gold rally, driven largely by central bank demand, could easily unravel if these same banks begin unwinding their holdings.
A sober, well-coordinated plan to sell official gold could expose just how shaky the current enthusiasm for bullion truly is.
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