Gold surpasses dollar in central bank reserves

Gold has overtaken U.S. dollar reserves held by central banks worldwide, according to a Sprott Precious Metals report by Paul Wong. The report links the shift to growing purchases of physical gold and changing reserve strategies at central banks.

Wong wrote that the long-running requirement to settle many energy trades in U.S. dollars supported steady demand for Treasuries. He said disruptions tied to recent Middle East tensions, including the closure of the Strait of Hormuz, reduced reliance on dollar settlement and accelerated a move into assets judged harder to restrict or seize.

The report describes gold as less vulnerable than sovereign debt to sanctions, maritime blockades and political freezes. Central banks are increasing their physical gold holdings and, in aggregate, have more gold than dollar-denominated reserve assets, the report found.

Wong characterized current U.S. fiscal conditions as a regime of fiscal dominance, where large deficits lead to frequent Treasury issuance and the Federal Reserve acting as a buyer of last resort. He warned that such conditions can produce gradual monetary debasement, which tends to support demand for precious metals. “In a system defined by rising sovereign debt, weaponized finance and deteriorating fiscal optionality, gold is increasingly functioning as the market’s barometer of systemic trust,” he wrote.

The report describes reserve managers moving toward direct control of physical assets. It says that when energy settlement patterns and geopolitical friction reduce the dollar’s role in trade, central banks respond by shifting a larger share of reserves into physical holdings.

For investors, the report outlines two broad exposure paths: direct physical bullion vehicles and funds focused on mining companies. Physical bullion funds remove individual storage and logistics needs and may allow conversion of fund shares into metal. Miner-focused funds offer exposure to company-level production gains and can amplify price swings in gold, while funds concentrated in smaller companies may show higher volatility.

The report includes standard investor warnings: past performance does not guarantee future results, indexes are not investable products, and investors should review prospectuses for objectives, risks, charges and expenses before investing.

The report places recent changes in reserves in historical context. After World War II, widespread settlement of energy trades in dollars helped create steady demand for U.S. Treasuries. The report says recent geopolitical disruptions and increased use of financial restrictions have prompted some central banks to diversify into assets they view as neutral and less susceptible to political interference.