Central banks’ increased preference for gold as a proportion of their reserves means the precious metal has more room to rise, according to Deutsche Bank. Gold’s share of central bank reserves has tripled to 30% today versus the 1990s as monetary policymakers seek hedges against geopolitical turmoil, strategist Mallika Sachdeva said in a report published Monday. The percentage share of U.S. dollars in foreign central bank reserves has fallen to 40% from more than 60%. “The fact that the gap between the dollar and gold as a share of reserves is now just 10% is extremely notable,” Sachdeva said. Central banks appear to be reversing the trend seen in the 1990s when they shifted exposure away from gold and toward the U.S. dollar, according to the London-based strategist. Sachdeva acknowledged that about 80% of the rise in gold’s share of central bank reserves is due to price appreciation rather than new purchases. Gold last year posted its strongest annual gain since 1979 — ironically, the year of the Iranian revolution — and is now up more than 40% in the past 12 months. @GC.1 1Y mountain Gold futures, 1-year But Sachdeva said central bank purchases nonetheless account for a significant share of the gain in reserve holdings, and that oftentimes its central bank purchases that are contributing to higher gold prices. “Volume and prices are thus endogenously related and are both doing the legwork of gold’s rising share,” Sachdeva said. Gold has long been viewed as a safe-haven asset for investors seeking security during times of global conflict. Since 2022, that’s pushed investors to gold, first as Russia invaded Ukraine and later as the U.S. and Israel attacked Iran. Where gold goes next depends in part on how much gold and U.S. dollars central banks in emerging economies end up holding, the strategist said. Emerging market central banks have accounted for all of the gold purchases by central banks since the Global Financial Crisis, a Deutsche Bank analysis of International Monetary Fund data shows. Even if emerging market foreign exchange reserves decline to $5 trillion but they aim to hold 40% of their reserves in gold, the strategist said the price of bullion might reach $8,000 an ounce over the next five years. That’s roughly 70% above where gold currently trades.