Central banks think the US has become riskier. They plan to sell dollars and buy gold

Central Banks Shift Away from Dollars, Turn to Gold Amid Rising Risks

Central banks think the US has become - Global central banks are increasingly prioritizing the reduction of their dollar reserves over expansion, according to a recent survey. This marks the first time since 2023 that the trend toward decreasing dollar holdings has surpassed the desire to add more, signaling a broader concern about the U.S. currency’s stability.

Geopolitical Tensions and Policy Uncertainty

The findings emerged amid heightened geopolitical tensions, including a Middle East conflict partially ignited by U.S. actions, which disrupted global energy markets. Concurrently, President Donald Trump’s pursuit of new tariffs has amplified perceptions of America’s unpredictable foreign policy, further casting doubt on the dollar’s reliability.

"This year, geopolitics has overtaken the U.S. political environment in discouraging investment in the dollar, reflecting the perceived role of the U.S. in elevating geopolitical risk," the OMFIF report stated.

The survey, conducted by the Official Monetary and Financial Institutions Forum (OMFIF) between March and May, gathered responses from 74 central banks worldwide. OMFIF, based in London, noted that the dollar still dominates portfolios, expected to remain so for the foreseeable future. However, a "gradual" move toward alternative currencies is evident, with central banks diversifying into the euro and renminbi.

Nearly all surveyed institutions view the renminbi as a valuable diversification tool, while two-thirds consider the euro more appealing for international trade, up from 43% in the previous year. Andrea Correa, head of research at OMFIF, told CNN that the dollar maintains a steady 58% share in central bank allocations over the past five years, though this is gradually being challenged.

Rising Demand for Gold

Parallel to this shift, demand for gold has surged as central banks seek to hedge against geopolitical uncertainty and questions about the international monetary system’s stability. A record number of institutions now plan to boost gold investments, despite prices rising over 20% from the previous year.

"Gold has moved to the centre of strategies to manage countries’ asset pools," the report added, highlighting its role in safeguarding reserves.

Additionally, interest in other currencies such as the Singapore dollar, South Korean won, and South African rand is growing. JPMorgan reported that the dollar’s proportion in foreign exchange reserves reached a two-decade low last year, underscoring the accelerating momentum toward de-dollarization.