The central bank reserve reallocation: Why has the position of gold in global assets increased to 22%?

What is the fundamental driver behind the continued strength of gold? The answer to this question may lie in the strategic shifts of central banks worldwide.

According to the latest HSBC outlook report, Think Future 2026, strategist Rodolphe Bohn has identified an intriguing phenomenon through data comparison: Since 2022, the proportion of gold in global central bank foreign exchange reserves has increased from about 13% to 22% in Q2 2025, while gold prices have risen from approximately $2,000 per ounce to over $4,000, a cumulative increase of 125%. This synchronized upward trend is no coincidence.

Central Bank Purchases Form a “Structural Bottom”

Despite recent increased volatility in gold prices, the overall trend remains strongly upward. Bohn points out that continuous central bank accumulation is a key long-term pillar supporting the strength of gold prices. Even as gold prices climb, central banks’ gold buying activities are not suppressed, primarily due to several deep-seated reasons: escalating geopolitical conflicts, rising global inflation and fiscal risks, increased uncertainty about the US dollar outlook, and growing demand for diversified asset portfolios.

“Central banks are the most long-term oriented institutions; they are unlikely to change strategies quickly. Therefore, a stable gold purchasing trend will continue to lay a solid foundation for gold prices.” Bohn emphasizes that although the pace of central bank buying may slow slightly, the likelihood of large-scale gold sell-offs remains very low.

Retail and Institutional Following, Gold ETF Funds Rebound

Apart from central banks, the actions of retail and institutional investors are also noteworthy. Since mid-2024, inflows into gold ETFs have been steadily improving, reflecting investors’ increasing demand for diversification and safe-haven assets amid high uncertainty. Similar to the logic of central bank gold purchases, concerns about inflation, expectations of a weak US dollar, and geopolitical risks are key factors driving retail investors to increase their gold holdings.

Macro Policy Environment Provides Strong Support for Gold Prices

From a macro perspective, the rise in gold is also driven by multiple policy factors. Bohn notes that gold typically exhibits a negative correlation with the US dollar and US Treasury yields. As the Federal Reserve re-enters a rate-cutting cycle, US economic data expectations weaken, and the dollar comes under pressure, gold benefits from significant macro policy support.

It is noteworthy that year-to-date, gold prices have increased by about 54%, making 2024 one of the most remarkable years in history. In October, gold briefly hit a record high of $4,380 per ounce, then retreated temporarily to $3,885 due to profit-taking. However, after consolidating near $4,000, gold prices have recently re-entered an upward channel.

The US government shutdown has delayed economic data releases, which could reinforce market expectations of a rate cut by the Fed in December, further fueling gold’s momentum.

Short-term Fluctuations Cannot Change Long-term Trends, but Risks Should Be Monitored

While gold prices may continue to face consolidation pressure in the short term, the current environment remains very favorable for gold, especially amid ongoing economic uncertainties and unclear policy directions. “After consolidation, gold prices are expected to resume a gradual upward trend.” Bohn states.

He emphasizes that allocating gold not only helps hedge against market turbulence but also plays a core role in diversified global asset portfolios. Even during periods of short-term positive correlation at historical highs, gold remains one of the most important safe-haven assets.

HSBC also warns of risk factors: if the Fed suddenly shifts to a more hawkish policy stance, or if the global economy performs significantly better than expected, market risk appetite could rise rapidly, weakening demand for gold. Additionally, if risk aversion diminishes markedly, gold’s upward momentum could be affected. However, within the current forecast framework, the probability of these adverse scenarios occurring remains lower than the likelihood of continued moderate gold price increases.

Multiple Positive Factors Combine to Extend the Bullish Gold Market

Overall, the combination of long-term central bank buying, weak US dollar expectations, the Fed’s rate-cut cycle, rebounding gold ETF inflows, and persistent geopolitical risks collectively underpin a strong fundamental support for gold prices.

Bohn concludes that, gold remains one of the most valuable asset allocation tools in high-uncertainty environments. HSBC expects gold prices to continue rising in the coming months, although the pace of increase may slow significantly compared to the past year. In this context, whether for global investors or those focusing on Canadian gold price trends, gold as a defensive asset in a portfolio continues to warrant attention.