Gold reserves surpass U.S. treasuries

The Great Central Bank Rebalancing: Gold Surpasses US Treasuries

A Monumental Shift in Central Bank Reserves

A significant development is reshaping the landscape of global finance: for the first time since 1995, central bank gold holdings have surpassed their holdings of US Treasuries. This remarkable shift, highlighted by financial analyst Tavi Costa, indicates a fundamental rebalancing of foreign reserves away from traditional US dollar assets.

The data, presented as a percentage of total foreign reserves, shows a clear trend. US Treasury holdings, represented by the blue line, have been steadily declining from a peak of around 30% to below 20%. In stark contrast, gold holdings (the yellow line) have been on a consistent upward trajectory since 2016, rising from a low of about 12% to now exceeding US Treasuries. This trend signals a diminishing reliance on the US dollar and its associated assets as the world's primary reserve currency.

The Diminishing "Exorbitant Privilege"

This shift directly challenges the "exorbitant privilege" that the US dollar has long enjoyed. This privilege allows the US to finance its deficits by issuing debt that is eagerly purchased by central banks globally as part of their foreign reserves. As central banks diversify away from US Treasuries, they are actively seeking alternative stores of value. This growing preference for gold over US debt is a powerful vote of no confidence in the long-term stability and value of the dollar, potentially signaling a new era of multi-polar global finance.

Historical Precedent and Future Implications

To understand the potential future of this trend, it's useful to look at the past. During the 1970s, a period of high inflation and geopolitical uncertainty, central bank gold holdings skyrocketed to over 75% of their total reserves.

While it's speculative to suggest a return to those levels, the current trend mirrors the early stages of that historical movement. If gold holdings continue to rise, even reaching just 40%, gold's price could enter a "different stratosphere." Conversely, the US Dollar Index (DXY) would likely weaken significantly.

This shift would have major implications for global capital flows, potentially directing funds toward emerging markets and other asset classes, away from the traditional US-centric financial system.

Key Takeaways

• Gold Outperforms: Central bank gold holdings have exceeded US Treasury holdings for the first time in nearly three decades, a major reversal of a long-standing trend.

• De-dollarization: The shift away from US Treasuries suggests a broader movement of de-dollarization, where central banks are diversifying their reserves and reducing their reliance on the US dollar.

• Historical Context: The current trend of increasing central bank gold purchases resembles the early stages of a similar movement in the 1970s, which saw gold's share of reserves reach over 75%.

• Market Impact: A continued increase in gold holdings could lead to a significantly higher gold price and a weaker US dollar, impacting global fund flows and benefiting emerging markets.

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What To Read This Week ?

Today’s Market Update

Tuesday, September 9th, began with no major global news except the shocking event of Nepal’s Parliament being set on fire.

This highlights once again the level of unpredictability and uncertainty across the world. On the India–US front, there has been no improvement in their ongoing dispute.

The larger issue remains the US’s firm stand on tariffs and restrictions on services. Prime Minister Modi has also spoken about India creating its own social media, which suggests a growing divide between the two countries.

• In terms of market performance, Nifty gained just 0.39%.

• Nifty Junior moved up 0.14%. Midcaps rose 0.2%, small caps 0.26%, and Bank Nifty barely 0.05%.

• Gold, on the other hand, has been on a ballistic rise since August 22, with dealers reporting an unusual premium of nearly 3%, something not seen in decades.

Other Market Triggers

• Within stocks, Infosys was the big mover, rising about 5% on its buyback plan.

• A few other names like Adani Ports and Dr. Reddy’s gained, while stocks like NTPC, UltraTech, Bajaj Auto, and Trent fell.

• In Nifty Next50, movers included Bajaj Holding, Adani Power, and Siemens, while Indigo, DLF, and Lodha slipped.

• Ujjivan Small Finance Bank also stood out, jumping more than 7% after announcing a QIP of ₹2000 crores.

What to watch next ?

• Since late August, the world has started looking very different, with gold prices shooting up nonstop in recent sessions.

• The unusual rise and the high premiums in bullion markets show that investors and even central banks are rushing to accumulate gold, which indicates that the global environment is deeply troubled.

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