Central Banks Plan First Dollar Cuts in a Decade, Pivot to Gold and Euro

For the first time on record, more of the world’s central banks plan to shrink their U.S. dollar holdings than grow them over the next decade, with gold and the euro picking up the slack. The findings come from the Official Monetary and Financial Institutions Forum (OMFIF), and they land at a moment when Washington’s policy path is anything but predictable.

What the OMFIF survey actually says

More of the world’s central banks plan to cut dollar allocations than increase them in the coming decade as political risks associated with the U.S. currency rise, an OMFIF survey of public investors released on Tuesday showed. It is the first time the survey has found a desire to decrease dollar allocations overtaking the intention to increase them since it started recording central banks’ investment intentions in 2023.

The findings were revealed in the latest survey by the Official Monetary and Financial Institutions Forum (OMFIF) involving 90 central banks, public pension funds and sovereign wealth funds that collectively manage around USD 10 trillion in assets.

Gold moves to the center of reserve strategy

Gold, which has hit a series of record-high prices and is held by 82% of central banks, has moved to the centre of reserve management strategy, the survey found. In the short term, it is the asset in which central banks plan most to increase holdings, with a net 30% of respondents intending to boost their allocation over the next one to two years.

The rise in geopolitical risk is driving up demand for gold. A record share of central banks said they plan to increase investments in gold, even as prices have surged more than 20% from a year ago.

Euro and yuan pick up flows, but with caveats

Nearly all central banks surveyed think the renminbi provides diversification, while two-thirds said the euro had become more attractive for use in global trade, up from 43% last year. Twenty-nine percent of respondents indicated a desire to increase euro holdings in the long term, up from 22% last year.

While survey respondents also maintained their intentions to increase euro and Chinese renminbi holdings, they said structural challenges reduced the appeal of both currencies. Central banks are also showing heightened interest in several other reserve currencies, including the British pound, the Norwegian krone, and the New Zealand dollar.

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Why traders should care

Reserve rebalancing is slow-moving but structural. If central banks continue trimming dollar exposure at the margin, that has implications for Treasury demand, the dollar index, and the long-term bid under gold.

Central banks doubled gold purchases to 1,000 tons annually while 74% plan to cut US Treasury holdings over the next five years. That is not a headline that disappears in a week.

Options market and stocks to watch

Watch for continued flow into gold-linked names and dollar-sensitive trades as the reserve shift plays out:

• GLD — the SPDR Gold Shares ETF is the most direct proxy for official-sector gold demand. Watch for sustained call flow if central bank buying headlines continue.
• IAU — iShares Gold Trust, another vehicle likely to benefit from institutional gold accumulation.
• NEM — Newmont, a large-cap gold miner with leverage to spot prices.
• UUP — the dollar bullish ETF; watch for hedging activity if de-dollarization narratives strengthen.
• FXE — Invesco CurrencyShares Euro Trust; a way to track euro allocation flows.

For more coverage of macro flows and reserve currency shifts, see other news on Unusual Whales.

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