US Treasuries have been back in the news this week following the US’s intervention to prop up the yen in Japan. With Japan holding more US Federal debt than any other nation, the American’s can ill afford a situation where the yen drops so low they must sell off their US bonds.
While the US dollar remains the anchor of the global financial system, with dollar‑denominated assets forming the core of official foreign exchange reserves, recent data indicates a measurable shift in reserve composition (hence why Japan overtook China as the largest holder of US Treasuries in 2019) and, more importantly, in how incremental reserves are allocated.
Recent European Central Bank data show that gold now accounts for approximately 27% of global reserve assets, compared with around 22% for US Treasuries. On a market‑value basis, this places gold ahead of Treasuries as the largest individual reserve asset, reflecting both sustained central bank accumulation and valuation effects from higher gold prices.
The dollar nonetheless remains dominant at the system level. Dollar‑denominated assets, including Treasuries, agencies, and deposits, continue to represent roughly 42% of global reserves, reinforcing its central role in the global financial architecture. The current shift is therefore better characterised as diversification rather than displacement.
Why This Matters
Changes in reserve composition reflect underlying capital flow dynamics that influence both currency markets and realised asset returns. For global investors, currency exposure is a meaningful component of performance. Recent market experience illustrates that returns on identical underlying assets can vary materially depending on FX exposure and hedging approach.
Currencies are best understood not as standalone assets, but as the outcome of cross-border capital flows. Capital moves in response to relative growth, yield, and perceived risk, and exchange rates adjust accordingly. In this context, foreign exchange markets often provide a relatively direct signal of macroeconomic conditions.
Dollar Cycles and Capital Flows
The US dollar has historically moved in multi‑year cycles. It weakened across much of the 2000–2012 period despite episodic strength during the global financial crisis, before entering a sustained phase of appreciation from 2012 to 2022. This period was characterised by US economic outperformance and monetary policy divergence.
A key driver of this strength was sustained global demand for US assets. The US net international investment position is currently around –$27 trillion, indicating that foreign investors hold significantly more US assets than US investors hold abroad. This reflects the cumulative impact of persistent capital inflows.
Three factors underpinned this dynamic:
Stronger relative US growth
Higher interest rates compared with other developed markets
The depth, liquidity, and perceived safety of US financial markets
These conditions are now evolving. Growth differentials are narrowing, interest rate advantages have moderated as global policy normalises, and rising fiscal deficits are increasing reliance on external financing. At the same time, yields in other developed markets have moved higher, reducing the relative attractiveness of dollar‑denominated assets.
A Shift at the Margin
The adjustment underway is not being driven by large‑scale selling of US assets, but by changes in marginal flows.
The US runs a persistent current account deficit of approximately $180–200 billion per quarter. This has to be financed by continuous capital inflows. If those inflows moderate, the dollar does not require active selling to weaken because a reduction in incremental demand can be sufficient to alter exchange rate dynamics over time.
The reallocation of reserves towards gold can be viewed in this context. A smaller share of incremental reserve accumulation is being directed into Treasuries, implying a gradual change in the composition of capital flows into the US.
Gold’s Rising Role
Since 2022, central banks have been purchasing gold at a historically elevated pace, with annual demand exceeding 1,000 tonnes for several consecutive years—well above the pre‑2022 average. Global official gold holdings now exceed 36,000 tonnes, approaching levels last seen during the Bretton Woods era.
Gold has accounted for a growing share of incremental reserve accumulation. While higher gold prices have contributed to its increased share on a market‑value basis, sustained official sector demand remains a key driver.
Forward‑looking indicators reinforce the trend. A significant proportion of central banks indicate an intention to increase gold holdings over the next 12 months, while the majority expect overall reserves to continue expanding. This ensures that allocation decisions at the margin remain relevant.
Demand has remained resilient despite higher prices, reflecting a strategic allocation approach, although purchases have shown some sensitivity to price levels at the margin.
Drivers of Allocation
The shift towards gold reflects several structural considerations:
- Reserve security: The freezing of Russian reserves in 2022 highlighted the risks associated with sovereign assets held in foreign jurisdictions.
- Diversification: Central banks are reducing concentration in USD‑denominated assets at the margin.
- Real return dynamics: Higher and more volatile inflation has reduced confidence in fixed‑income real returns.
- Asset characteristics: Gold carries no credit risk and is not linked to any single sovereign issuer.
Implications for Treasuries and the Dollar
There is limited evidence of sustained, large‑scale selling of US Treasuries by central banks. Holdings remain substantial, and Treasuries continue to underpin global liquidity and collateral markets.
However, marginal demand is evolving. A smaller share of reserve growth appears to be allocated to US government debt, implying a slower expansion of official sector demand, a greater reliance on private and more price‑sensitive capital, and yields becoming more sensitive to market conditions.
Market Implications
There is no evidence of a rapid displacement of the dollar. However, recent data point to a gradual diversification of the global reserve system.
The dollar has historically weakened during periods of slower capital inflows, even outside crisis environments. A combination of incremental diversification and evolving allocation patterns may therefore influence currency dynamics over time.
The growing role of gold alongside a reduced marginal allocation to Treasuries reflects a gradual rebalancing of global reserves. While incremental, this shift has increasingly relevant implications for currency behaviour, rates, and broader market dynamics.
Find out more about our investment services
Here at Copia we try to understand all the key trends that are affecting markets at any given time. Whether it be gold overtaking Treasuries, or big tech spending big while profits fall… If you’d like to speak to our team about our approach, call us during office hours Monday to Friday on 020 4599 6475, or email [email protected].
This article, like our investment services, is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such. Remember, the value of investments will fluctuate, and capital is at risk.
6th August 2026
Gold, Treasuries, and the Evolution of Global Reserves
US Treasuries have been back in the news this week following the US’s intervention to prop up the yen in Japan. With Japan holding more US Federal debt than any other nation, the American’s can ill afford a situation where the yen drops so low they must sell off their US bonds.
While the US dollar remains the anchor of the global financial system, with dollar‑denominated assets forming the core of official foreign exchange reserves, recent data indicates a measurable shift in reserve composition (hence why Japan overtook China as the largest holder of US Treasuries in 2019) and, more importantly, in how incremental reserves are allocated.
Recent European Central Bank data show that gold now accounts for approximately 27% of global reserve assets, compared with around 22% for US Treasuries. On a market‑value basis, this places gold ahead of Treasuries as the largest individual reserve asset, reflecting both sustained central bank accumulation and valuation effects from higher gold prices.
The dollar nonetheless remains dominant at the system level. Dollar‑denominated assets, including Treasuries, agencies, and deposits, continue to represent roughly 42% of global reserves, reinforcing its central role in the global financial architecture. The current shift is therefore better characterised as diversification rather than displacement.
Why This Matters
Changes in reserve composition reflect underlying capital flow dynamics that influence both currency markets and realised asset returns. For global investors, currency exposure is a meaningful component of performance. Recent market experience illustrates that returns on identical underlying assets can vary materially depending on FX exposure and hedging approach.
Currencies are best understood not as standalone assets, but as the outcome of cross-border capital flows. Capital moves in response to relative growth, yield, and perceived risk, and exchange rates adjust accordingly. In this context, foreign exchange markets often provide a relatively direct signal of macroeconomic conditions.
Dollar Cycles and Capital Flows
The US dollar has historically moved in multi‑year cycles. It weakened across much of the 2000–2012 period despite episodic strength during the global financial crisis, before entering a sustained phase of appreciation from 2012 to 2022. This period was characterised by US economic outperformance and monetary policy divergence.
A key driver of this strength was sustained global demand for US assets. The US net international investment position is currently around –$27 trillion, indicating that foreign investors hold significantly more US assets than US investors hold abroad. This reflects the cumulative impact of persistent capital inflows.
Three factors underpinned this dynamic:
Stronger relative US growth
Higher interest rates compared with other developed markets
The depth, liquidity, and perceived safety of US financial markets
These conditions are now evolving. Growth differentials are narrowing, interest rate advantages have moderated as global policy normalises, and rising fiscal deficits are increasing reliance on external financing. At the same time, yields in other developed markets have moved higher, reducing the relative attractiveness of dollar‑denominated assets.
A Shift at the Margin
The adjustment underway is not being driven by large‑scale selling of US assets, but by changes in marginal flows.
The US runs a persistent current account deficit of approximately $180–200 billion per quarter. This has to be financed by continuous capital inflows. If those inflows moderate, the dollar does not require active selling to weaken because a reduction in incremental demand can be sufficient to alter exchange rate dynamics over time.
The reallocation of reserves towards gold can be viewed in this context. A smaller share of incremental reserve accumulation is being directed into Treasuries, implying a gradual change in the composition of capital flows into the US.
Gold’s Rising Role
Since 2022, central banks have been purchasing gold at a historically elevated pace, with annual demand exceeding 1,000 tonnes for several consecutive years—well above the pre‑2022 average. Global official gold holdings now exceed 36,000 tonnes, approaching levels last seen during the Bretton Woods era.
Gold has accounted for a growing share of incremental reserve accumulation. While higher gold prices have contributed to its increased share on a market‑value basis, sustained official sector demand remains a key driver.
Forward‑looking indicators reinforce the trend. A significant proportion of central banks indicate an intention to increase gold holdings over the next 12 months, while the majority expect overall reserves to continue expanding. This ensures that allocation decisions at the margin remain relevant.
Demand has remained resilient despite higher prices, reflecting a strategic allocation approach, although purchases have shown some sensitivity to price levels at the margin.
Drivers of Allocation
The shift towards gold reflects several structural considerations:
Implications for Treasuries and the Dollar
There is limited evidence of sustained, large‑scale selling of US Treasuries by central banks. Holdings remain substantial, and Treasuries continue to underpin global liquidity and collateral markets.
However, marginal demand is evolving. A smaller share of reserve growth appears to be allocated to US government debt, implying a slower expansion of official sector demand, a greater reliance on private and more price‑sensitive capital, and yields becoming more sensitive to market conditions.
Market Implications
There is no evidence of a rapid displacement of the dollar. However, recent data point to a gradual diversification of the global reserve system.
The dollar has historically weakened during periods of slower capital inflows, even outside crisis environments. A combination of incremental diversification and evolving allocation patterns may therefore influence currency dynamics over time.
The growing role of gold alongside a reduced marginal allocation to Treasuries reflects a gradual rebalancing of global reserves. While incremental, this shift has increasingly relevant implications for currency behaviour, rates, and broader market dynamics.
Find out more about our investment services
Here at Copia we try to understand all the key trends that are affecting markets at any given time. Whether it be gold overtaking Treasuries, or big tech spending big while profits fall… If you’d like to speak to our team about our approach, call us during office hours Monday to Friday on 020 4599 6475, or email [email protected].
This article, like our investment services, is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such. Remember, the value of investments will fluctuate, and capital is at risk.