Is Gold Becoming the New Neutral Reserve (Again)?

History repeats itself in the large because human nature changes with geological leisureliness.

— Will Durant (“The lessons of History”)

The U.S. dollar has long been the cornerstone of the global financial system. Today, it still accounts for nearly half of international reserves, far outpacing any rival currency and near its highest share in history. This dominance reflects America’s economic size and unmatched depth of its financial markets. However, cracks are forming beneath the surface as converging forces threaten to erode the dollar’s role, with gold emerging as the main beneficiary.

Is this a temporary shift or the early signs of a lasting change in global reserves?

America’s fiscal position is under scrutiny, with the U.S. now carrying a net international investment deficit of –$25 trillion — the largest of any nation. As we noted in our recent blog, questions around U.S. capital inflows are growing. For reserve managers, this imbalance signals diversification, while shrinking trade deficits give central banks room to reduce dollar holdings.

After decades of decline, gold has staged a comeback, rising to nearly 19% of official reserves — its highest share in modern history. Central banks in China, India, Russia, and the Middle East are leading this push, seeking a neutral store of value immune to politics and sanctions. Gold’s performance has reinforced the trend. Up 39% this year, second only to silver among all major asset classes, the rally highlights renewed investor demand as both an investment and a monetary anchor. In a world of growing fragmentation, gold is once again establishing itself as the ‘politically safe’ reserve asset.

As we noted in a prior blog, gold’s recent behavior cannot be reduced to a simple inflation hedge. Today, reserve managers are treating it as a counterweight to fiscal strain and geopolitical risk.

Traditional allies have bristled at U.S. tariffs while blocs like BRICS+ (Brazil, Russia, India, China and Saudi Arabia, etc.) and the Shanghai Cooperation Organization call for a multipolar order. China, now surpassing the U.S. in global trade share, is leveraging that position to push for alternatives. However, until alternative currencies gain broader acceptance, gold is the neutral bridge asset filling the gap.

Despite these headwinds, predictions of the dollar’s demise remain premature. No other currency matches the dollar’s depth and liquidity. Alternatives face limits – from eurozone fragmentation to yen demographics and renminbi controls. Network effects in invoicing, settlement and contracts set a high bar for challengers.

The most likely outcome is not collapse but gradual diversification, with the dollar’s share drifting lower as gold and “other” currencies gaining some ground.

Trade policy points to gradual rebalancing. Gold’s role in reserves is expanding, and other assets are also gaining. This might not be the end of dollar hegemony, but it is a reminder that the dollar’s privilege should not be taken for granted.

Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.