Central banks see gold at $5,000-$6,000 as dollar reserves shrink

For the first time, more central banks plan to cut dollar holdings than increase them over the next decade, as geopolitical risks push a structural shift toward a multipolar reserve system, the Official Monetary and Financial Institutions Forum's annual survey showed.

"Central banks are increasingly viewing gold as a core strategic reserve asset rather than a defensive hedge," the OMFIF said in its report, which surveyed 90 institutions managing nearly $10 trillion in assets.

The survey found that 82 percent of central banks hold physical gold, with a net 30 percent planning to increase allocations over the next one to two years. Among those, 61 percent expect gold prices to trade between $5,000 and $6,000 per ounce by June 2027. Gold purchases are driven primarily by strategic considerations, with 51 percent of respondents citing geopolitical risk hedging as the main motivation.

The shift has implications for currency markets and sovereign bond demand. Nearly 79 percent of central banks and 60 percent of public investment funds said the global monetary system is transitioning toward a multipolar reserve framework, with growing interest in the Norwegian krone, New Zealand dollar and British pound alongside the euro and China's renminbi. However, respondents noted that structural challenges continue to limit the euro and yuan from becoming full alternatives to the dollar.

The survey, which covered 90 central banks, sovereign wealth funds and public pension funds managing nearly $10 trillion in assets, marks a turning point in reserve management. Political risks surrounding the dollar — the world's dominant reserve currency — are prompting institutions to rethink long-term allocation strategies, even as the greenback has gained about 3 percent this year supported by higher US interest rates and safe-haven flows during the recent US-Iran conflict.

Gold's Strategic Pivot

Gold has moved from a defensive hedge to a core strategic reserve asset during persistent geopolitical uncertainty and elevated market volatility, the OMFIF said. Held by 82 percent of central banks, the precious metal is now the asset class that institutions are most likely to increase over the next one to two years. Gold prices have repeatedly touched record highs in recent months as investors sought protection against inflation and financial market uncertainty.

Emerging Markets Draw Fresh Capital

The survey also revealed a notable shift in investment preferences among sovereign investors. Some 38 percent of public funds intend to increase allocations to emerging markets, up sharply from 27 percent a year earlier. By comparison, interest in raising exposure to developed economies has fallen to 25 percent, down from 47 percent last year. Infrastructure and real estate emerged as the preferred asset classes, with nearly 60 percent of public funds planning to raise investments over the next two years.

Despite the diversification trend, the United States and China remain the world's most attractive investment destinations, largely because of their leadership in the rapidly expanding artificial intelligence sector, the survey found.

AI Adoption Accelerates Across Central Banks

More than two-thirds of central banks plan to expand AI integration in the near future, with no advanced economy central bank reporting satisfaction with current AI usage. Institutions are primarily deploying AI for data analysis, forecasting and back-office operations, although adoption remains uneven. Nearly 89 percent of central banks in advanced economies are already using AI, compared with 44 percent in emerging markets.

The survey suggests that while the dollar is unlikely to lose its reserve currency dominance anytime soon, central banks are increasingly preparing for a world in which reserve portfolios become more diversified, technology-driven and less dependent on a single global currency. The next 12 to 24 months will be critical in determining whether this structural shift accelerates or stabilizes, with gold prices serving as a key barometer of institutional conviction.

This article is for informational purposes only and does not constitute investment advice.