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Germany’s leading international investment bank, Deutsche Bank, has made a shocking estimate. According to estimates, the share of gold in global central bank reserves may increase from the current approximately 30 percent to 40 percent. Based on these scenarios, the bank conducted a simulation which indicated that gold prices could reach $8,000 an ounce within five years, which means an increase of about 80 percent from current levels. Gold could become one of the biggest beneficiaries of the increasingly fragmented global financial system. The main reason for this is that most of the countries in the world are continuously shifting their reserves from US dollars to gold.
More than 225 million ounces of gold added
In a note issued on Monday, the German lender said central banks, especially in emerging markets, may continue to add gold to their reserves as a financial safeguard against potential Western sanctions. The bank said that since the 2008 financial crisis, central banks have added more than 225 million ounces of gold. Over the same period, the US dollar’s share of global reserves has declined from more than 60 percent in the early 2000s to about 40 percent currently. Deutsche Bank said that the purchase of gold is no longer limited to major holders like China, Russia, India and Türkiye. This purchase is also expanding to other countries including Kazakhstan, Saudi Arabia, Qatar, Egypt and the United Arab Emirates.
Countries moving towards de-dollarization
The bank clarified that this is an ideological landscape and not an official price forecast. However, it reflects the broader market view that as confidence in US assets weakens, gold may be the biggest beneficiary of the global ‘de-dollarization’ trend. A survey conducted by the World Gold Council last year found that central banks consider economic and geopolitical uncertainty as a major reason for increasing gold reserves.
Fall in prices due to war
Gold prices have increased by about 8% so far this year, giving further impetus to the rally created last year due to strong demand from central banks. However, prices have fallen since the start of the US-Iran war, wiping out about two-thirds of the gains since January. In January itself, this metal had touched its highest level ever. Since the start of the US-Iran War, gold has not shown its usual strength in times of geopolitical tension.
One of the main reasons for this is the sharp rise in crude oil prices and increasing stress, which has created a widespread ‘risk-off’ (risk-averse) environment in the financial markets. Due to this, investors have increased their cash levels and reduced their leveraged positions in different asset classes. In such times, even traditional safe assets like gold may face short-term selling pressure as investors sell their holdings to meet margin calls or rebalance their portfolios.
Fed and stronger dollar can give a shock
Another reason is the strong US dollar and the strict attitude of the Federal Reserve, which has reduced the attractiveness of assets without any return like gold and silver. Since the prices of precious metals are fixed in dollars, the strengthening of the US currency makes these metals expensive for buyers using other currencies, which can weaken both investment and physical demand.
Additionally, ongoing geopolitical turmoil in many regions continues to support gold’s long-term role as a monetary hedge in global portfolios. Structural supply constraints are also limiting the availability of new metals, while central bank demand remains strong as countries move their reserves from fiat currencies and invest in other assets. Over the past decade, purchases of gold by central banks around the world have almost doubled.
