XAU/USD (FX:XAUUSD) slipped to 4005.5, down 0.22% on the day, as gold digests a stretch of record highs even while a slow but steady shift away from the dollar continues to build underneath global markets. The pullback looks minor next to the bigger story: central banks are rethinking how much faith to put in the greenback at all.
At a Glance
- XAU/USD trades at 4005.5, down 0.22% on the day
- A new survey finds more central banks plan to cut dollar holdings than raise them over the next decade, the first time that has happened since tracking began in 2023
- The dollar still makes up roughly 58% of central bank reserve allocations, a share that has held steady for five years
- Interest in the euro and the Chinese renminbi is rising as reserve managers diversify
- Political and geopolitical risk tied to US policy is now cited as the top reason to pull back from the dollar
| Price | 4005.5 |
|---|---|
| Day change | -8.85 (-0.22%) |
| Volume | 177,394 |
Why Reserve Managers Are Rethinking the Dollar
The Official Monetary and Financial Institutions Forum, a London based research group, surveyed 74 central banks between March and May and found that, for the first time, more of them intend to reduce dollar holdings over the next ten years than intend to add to them. That is a notable reversal from prior years and it matters for gold because reserve managers who trim dollar exposure often route some of that money into bullion as a neutral, no counterparty asset.
The survey pins the shift on geopolitics more than domestic US politics. This year's war in the Middle East, which drew in the United States and rattled energy markets, along with President Trump's continued push to expand tariffs, has made America's foreign policy path harder to predict. OMFIF's report says that unpredictability, rather than any single policy, is now the main deterrent for central banks weighing dollar allocations.
Gold's Role as the Dollar Loses Some Shine
None of this means the dollar is being abandoned. It has held around 58% of central bank foreign exchange reserves for five straight years, according to OMFIF's head of research, and the report is explicit that the currency will keep dominating portfolios for the foreseeable future. But the direction of travel, even if gradual, is what markets watch. JPMorgan data already shows the dollar's share of global reserves fell to a two decade low last year.
Central banks are spreading that diversification across a few destinations. Nearly all respondents said the renminbi offers useful diversification, and two thirds now view the euro as more attractive for global trade, up sharply from 43% a year earlier. Twenty nine percent said they want to raise euro holdings over the long run, versus 22% last year. Smaller currencies, including the Singapore dollar, South Korean won and South African rand, are also drawing fresh interest. Gold sits alongside these as a parallel option, one that doesn't require betting on any single government's currency.
What This Means for XAU/USD Going Forward
For traders watching XAU/USD near the 4005 level, the de-dollarization trend is a slow burning tailwind rather than a daily driver. Short term price action in gold still hinges on real yields, Federal Reserve rate expectations and shifts in risk appetite, which is likely what pulled prices down 0.22% on the day. But the structural backdrop, central banks souring on concentrated dollar exposure amid geopolitical uncertainty, gives gold demand a longer runway. The risk to the upside is that further tariff escalation or another geopolitical shock accelerates reserve diversification faster than expected, pulling more official buying into gold. The risk to the downside is that easing tensions or a stabilizing US policy stance could slow the reserve shift and cool some of the safe haven demand that has helped lift prices to recent records.Watching the Pace of Change From Here
Nothing in the OMFIF survey suggests an abrupt break from the dollar. Reserve managers describe the move as gradual, and the dollar's five year hold on 58% of allocations backs that up. Still, the fact that more central banks now lean toward cutting exposure than adding to it marks a psychological shift worth tracking, especially for anyone positioned in gold, where official sector buying has been a quiet but persistent source of demand.