According to a report released on Tuesday, gold has now surpassed US Treasury bonds to become the largest central bank reserve asset globally, following years of sustained central bank accumulation and a near-doubling of its price over the past two years.
The report indicates that by the end of 2025, gold constituted 27% of total global central bank reserve assets, up from 20% a year earlier. Over the same period, the share of US Treasury bonds fell from 25% to 22%.
The report attributes the significant increase in gold's share primarily to valuation effects. Thanks to explosive price surges in both 2024 and 2025, the value of gold holdings has risen substantially, thereby securing a larger portion of global central bank reserves.
Despite reaching this significant milestone, the report suggests this trend may not be sustainable.
The report stated: "Looking ahead, gold has limitations as an official reserve asset compared to major fiat currencies. It exhibits high price volatility, generates no yield, and incurs significant storage costs when held in physical form."
"More importantly, gold supply is not perfectly elastic and cannot adjust seamlessly with changes in international liquidity demand."
After a sharp rise over the past two years, the gold price hit a record high near $5,600 per ounce in January this year. However, following the outbreak of conflict in the Middle East, gold failed to rally further on safe-haven demand and instead retreated significantly from its highs. As of the latest update, spot gold is trading at $4,476 per ounce.
The primary reasons for this are that the energy shock triggered by the Middle East conflict has pushed inflation higher. Additionally, expectations that the new Federal Reserve Chair, Kevin Warsh, may implement a policy mix prioritizing balance sheet reduction over interest rate cuts have weighed on the dollar-denominated metal due to anticipated hawkish Fed policy.
Furthermore, profit-taking by investors after the previous price surge and sales of gold reserves by some countries to raise cash have added to the selling pressure on gold.
Wall Street Debates the Gold Outlook
This year, gold's trajectory has been as volatile as a rollercoaster, with investors closely watching its next move. As gold enters a correction phase, several major Wall Street banks have reassessed their price targets.
Morgan Stanley was among the first to lower its gold price forecast in late April, revising its target for the second half of 2026 down to $5,200 per ounce, significantly below its previous prediction of $5,700. The firm cited the normalization of the classic inverse relationship between gold and real interest rates, driven by geopolitical friction pushing real rates higher and delaying Fed rate cuts.
JPMorgan Chase revised its 2026 average gold price forecast down to $5,243 per ounce from $5,708. Its report noted persistently low total open interest and trading volume in COMEX gold futures, with managed money net futures positions hovering at low levels and subdued ETF inflows.
ANZ lowered its year-end gold target to $5,600 per ounce from $5,800 and pushed back its forecast for gold to reach $6,000 from early 2027 to mid-2027.
The bank's analysts noted: "The market currently seems caught between anxiety driven by geopolitics and concerns about rising inflation."
Citigroup recently expressed a bearish short-term view on gold, predicting prices could touch $4,300 per ounce over the next three months. The firm believes that once a US-Iran cooperation consensus is reached and shipping order is fully restored, leading international oil prices back to pre-conflict levels, market inflation sentiment will weaken rapidly, allowing real interest rates to rise and subsequently pressuring gold.
However, Citigroup has not turned entirely pessimistic on gold's medium-term prospects, maintaining a 6-12 month target of $5,000 per ounce.
Most institutions have not abandoned their positive outlook for gold's future trajectory. Goldman Sachs maintains its bullish view, forecasting that gold will resume its upward trend by the end of 2026.
The bank's analysts stated in a report that gold's medium-term prospects remain solid, with prices potentially reaching $5,400 per ounce, supported by continued central bank buying and expectations of two more Fed rate cuts this year.
UBS last week lowered its gold price forecast for the end of 2026 to $5,500 per ounce from $5,900, citing persistent headwinds from high US Treasury yields and a strong US dollar.
While UBS believes the structural bull market for gold is not over, its analysts noted that investors may require greater patience in the face of these challenges. Nevertheless, their forecast still implies a further $1,000 increase in the gold price by year-end.
UBS's longstanding view is that gold is essentially a tool to hedge against the broader secondary effects of conflict, rather than a direct hedge against frontline war threats. Its core function is to isolate and defend against monetary and macro-financial risks such as currency devaluation, surging fiscal deficits, and slowing economic growth triggered by geopolitical conflicts.
UBS analysts also acknowledged, "In the short term, rising energy prices and inflation concerns are boosting the US dollar and raising fears of potential rate hikes—both of which are negative for gold prices. But we expect central banks to monitor inflation risks closely and not rush to raise rates."
Furthermore, the longer the US-Iran conflict drags on, the greater the risk of negative macroeconomic spillovers, which in turn would continue to support hedging demand for gold.
UBS stated: "Over the long term, gold is an effective hedge against inflation. According to the Global Investment Returns Yearbook, since 1900, the real returns of gold and commodities have shown a positive correlation with inflation."
UBS also emphasized that structural trends will continue to support gold's appeal, noting: "We expect structural trends such as high government debt, and efforts by central banks and global investors to diversify and reduce reliance on the US dollar, to support gold's long-term outlook. Therefore, given macroeconomic and political uncertainties beyond the risks from the US-Iran conflict, we remain positive on gold and believe the precious metal remains an effective portfolio diversification tool. Investors interested in gold could consider allocating up to a mid-single-digit percentage (e.g., around 5%) of their diversified asset portfolio to gold."
It can be seen that a "short-term cautious, medium-term optimistic" judgment logic is the most distinct common feature in this round of reassessments by major Wall Street banks.
Regarding the medium-term gold outlook, Wells Fargo has even presented a bold prediction of $8,000, with its bullish thesis primarily centered on currency devaluation.
Wells Fargo points out that the global economy has entered a fourth "cycle of currency devaluation," where rising debt, deficits, and inflation are eroding the value of fiat currencies like the US dollar. During such periods, investors often seek safe havens outside the traditional system. Historically, gold has been the best destination for wealth preservation.
Wells Fargo strategists stated that four out of five economic scenarios point to further currency devaluation, which could drive the gold price to $8,000 per ounce by 2027. However, in a pessimistic scenario where currency devaluation momentum is weaker than expected, the price could fall to $4,000 per ounce by the end of 2027.
Canadian mining legend Pierre Lassonde has gone further, predicting that gold could reach $17,250 per ounce as it replaces the US dollar as the ultimate reserve currency.
Pierre Lassonde stated that extreme leverage today makes the current economic cycle more volatile. In the late 1970s, as inflation and interest rates rose together, the gold price increased tenfold. Now, one must also consider the massive US sovereign debt. He believes the Federal Reserve is monetizing debt, providing a persistent tailwind for gold. He is convinced that a $17,250 gold price target is not fanciful and expects the market to see it achieved within three years.
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