Are We Witnessing a New Era in the Global Financial System?

A chart recently circulated claiming that central banks' gold holdings have surpassed their holdings of US Treasuries, sparking widespread excitement in financial circles. Even Mohamed El-Erian, Allianz's chief economist, shared the chart on LinkedIn, amplifying interest in the topic. But does this signal a fundamental shift in the post-Bretton Woods global financial system?

Skepticism About the Data's Accuracy

Toby Nangle, head of multi-asset allocation at Columbia Threadneedle Investments, questioned the veracity of these claims in an article in the Financial Times. Initially skeptical about the data's credibility, Nangle's doubts intensified when Matt King, an analyst at Satori Insight, failed to replicate the findings. Therefore, Nangle decided to conduct a thorough investigation.

Analyzing IMF and US Treasury Data

The International Monetary Fund (IMF) conducts a quarterly survey of central banks and publishes a benchmark report entitled "Currency Composition of Official Foreign Exchange Reserves" (COFER). The latest report shows that dollar-denominated assets account for $6.7 trillion of the total $11.6 trillion in "allocated foreign exchange reserves," equivalent to 58%. But is that the whole story? Of course not.

The IMF's COFER report refers to "currency classes," not "asset classes." Therefore, the $6.7 trillion in dollar-denominated assets does not necessarily represent US Treasuries only. It is known that central banks also hold substantial amounts of agency bonds and other dollar-denominated debt - all of which fall within this $6.7 trillion figure, with the exception of monetary gold denominated in dollars.

In contrast, the US Treasury Department's June "International Capital Flow Report" (TIC) reveals that foreign investors hold $9.1 trillion in US Treasury bonds and bills, of which approximately $3.9 trillion is believed to be held by foreign central banks.

Comparing Gold and Treasury Holdings

The IMF publishes data on the quantities of gold held by central banks (in troy ounces). It also collects data on "total reserves including gold." Even with current market gold prices, one cannot arrive at the conclusion that "gold (accounts for 28% of central banks' foreign exchange reserves)" as shown in the viral chart, but it can be calculated that gold accounts for 22%.

At the end of June, central bank gold holdings were estimated at $3.86 trillion, according to Nangle's calculations, which is still less than the $3.92 trillion in US Treasuries held by official foreign entities.

However, gold prices have risen 10.5% since the end of June. The World Gold Council estimates that central banks continue to buy gold. Even if there is no further purchasing, the price increase alone would raise the value of central bank gold holdings to $4.2 trillion.

The Impact of Rising Gold Prices

We won't know if central banks' holdings of US Treasuries and gold holdings have actually crossed until the next TIC report is released on October 17. But unless reserve managers increased their holdings of US Treasuries by $200 billion in July and August, it is very likely that gold holdings will exceed Treasury holdings.

However, Nangle believes that the actual impact of this may not be as significant as some think.

Deeper Analysis of Trends

First of all, it is an exaggeration to say that "central banks are fleeing the US Treasury market." The crossover in values is largely due to a 38% rise in gold prices in 2025 - an increase partly driven by central banks buying gold.

Central bank gold holdings reached their lowest point in March 2009 and have steadily increased since then. Official data show no signs of an acceleration in the rate of increase, but there may be something worth noting: the significant increase in gold prices has not stopped the pace of purchasing.

Inflation's Impact on US Debt Value

Moreover, despite rising US Treasury prices last year, the value of US government debt has not returned to its levels from five years ago - that is, before inflation began to take hold.

The following chart shows the performance of an ETF that tracks long-term US Treasuries, which represent a significant proportion of central bank reserves.

Conclusion

In short, this phenomenon in central bank reserves is mainly due to recent price movements, and is not a radical and significant shift from US Treasuries to gold. We must also remember that central bank reserve data is not always entirely reliable, so it should not be fully trusted. Some countries may hold foreign exchange reserves in excess of reported data.

Are central banks really reducing their holdings of US Treasuries and increasing their holdings of gold? That is correct. Concerns about the economic policies of the Trump administration are now naturally intertwined with long-standing concerns about the "weaponization of the dollar." But the actual situation is not as dramatic as the chart shows.