Dollar's share of global reserves declines, many countries see gold as a safer asset: Report

Central banks around the world could continue expanding their gold reserves amid ongoing geopolitical uncertainties, as highlighted in a recent report by Quantum Mutual Fund.

The report pointed to a trend of steady investment in gold and reserve diversification by central banks, which is expected to persist this year due to rising tensions in the Middle East, upcoming elections in the U.S. and Europe, and an increasingly fragmented global economy.

"The trend of investments into gold and diversification of reserves continues. We believe this trend is likely to continue this year amid geopolitical uncertainties in middle east" said the report.

According to report, these factors continue to make gold an attractive option for central banks aiming to reduce reliance on the U.S. dollar, which has faced challenges from the U.S.'s growing debt and budget deficits. As the dollar's share of global reserves declines, many countries see gold as a safer asset.

The report also highlighted that "Fundamentally, the continuing deficits and unsustainable debt in the US is gradually eroding confidence in the dollar as reflected in dollar's share of global reserves. Given the lack of alternatives, gold has been a key beneficiary of this diversification trend".

It also noted that the medium-term outlook for gold remains strong, bolstered by economic conditions in the U.S. and global shifts in investor sentiment. Gold prices surged to a historic high of USD 2,790.41 per troy ounce on October 31, 2024, following a rally that began in late September.

Despite some pullbacks, the report noted that gold has shown resilience, largely due to interest rate policies in the U.S. and mounting concerns over economic stability. Beyond immediate price gains, broader global risks continue to drive investor interest in gold as a hedge against instability.

The report outlined that the combination of central bank demand, geopolitical tensions, and economic uncertainties suggests that gold will likely remain a favored asset, providing stability in a turbulent global environment.