Diversification away from USD reserve holdings, while still moderate, has been accelerating in recent years, according to Currency Composition of Official Foreign Exchange Reserves (COFER) data from the International Monetary Foundation (IMF).

Globally, central bank gold holdings amount to nearly 36,200 tonnes and account for almost 20% of official reserves, up from around 15% at the end of 2023, according to reported IMF data through the end of 2024.

If central banks with a reported share of gold under 10% were to increase their gold holdings to 10% at a price of $4,000/oz, this would require a notional shift into gold of around $335 billion, or the equivalent of around 2,600 tonnes of purchasing.

Even at $5,000/oz, the same exercise results in a $194 billion notional shift into gold, or the equivalent of 1,200 tonnes of purchasing.

“With this in mind, we continue to monitor the largest reserve holders with a reported gold share below 10%. Brazil reported purchases of 15 tonnes in September and another 16 tonnes in October, while the Bank of Korea also publicly discussed ‘plans to consider additional gold purchased from a medium- to long-term perspective,’” Shearer said.

At the same time, some of the largest buyers in recent years have been central banks whose gold holdings already exceed 10%. According to a 2020 BIS study, central banks in emerging markets (EM) or those using commodity currencies benefit from holding more than 20% of their reserves in gold, as it provides strong protection against foreign exchange risk.

Investors
Central banks haven’t been the only ones increasing their relative share of gold holdings over the last couple of years, with investor demand set to expand too.

In the financial gold markets, investors’ futures positioning remains long, or with an expectation the price will rise in value in the future.

While it is the quickest component from a flows perspective, futures positioning is only one relatively small part of broader gold investor holdings, which also include gold ETFs and physical bar and coin holdings.

J.P. Morgan Global Research forecasts ongoing robust investor demand for gold, with around 250 tonnes of inflows into ETFs expected in 2026, while bar and coin demand is once again set to surpass an elevated 1,200 tonnes of annual demand.

As of the end of September, driven by the sharp rally in prices as well as robust investor inflows, investor holdings of gold (via ETFs, bars and coins, and COMEX futures) reached around 2.8% of total assets under management (AUM) of equities, fixed income (ex-central bank reserves) and alternatives.

“While gold’s share of total investor AUM has grown by around one percentage point over the last two years as prices and demand have increased, we still see the potential for this share to rise toward 4–5% over the coming years,” Shearer noted.

Historically, ETF holdings are driven primarily by changes in interest rates, as lower rates increase the attractiveness of non-yielding gold as a risk-free asset.

Gold ETFs could continue to attract inflows in the coming months on expectations of a Federal Reserve (Fed) easing cycle, driving support for prices. This would also align with gold’s usual pattern during the early stages of Fed rate cuts: after a brief dip and a period of stability for two to three months following the first rate cut, gold prices typically start rising again from the fourth month onward.

“Looking longer-term, we think part of this year’s outperformance of gold ETF holdings versus expectations, based on changes in U.S. yields alone, is symptomatic of a more structural trend of greater investor diversification into gold,” Shearer noted.

There is also further potential for gold’s ownership pool to grow next year, with sources ranging from Chinese insurance companies to the crypto sphere.

“While precisely timing the catalysts and inflows that will push prices higher remains difficult, we continue to have strong conviction that gold demand will have enough firepower to continue to push prices toward $5,000/oz in 2026,” Shearer said.

“If anything, we think our investor demand assumptions are potentially on the conservative side. We have laid out a scenario where if diversification of just 0.5% of foreign U.S. asset holdings into gold took place, it would be enough new demand to drive prices to $6,000/oz. With gold mine supply relatively inelastic and slow to respond to these higher prices and demand expected to remain robust, risk continues to skew toward reaching this multi-year target much quicker than expected,” Shearer added.