Gold and silver have continued to hold their recent gains this week, with both precious metals pushing into stronger positions. Behind those gains, there is also a broader change taking place as central banks reconsider how much of their reserves should remain tied to the US dollar.
The Reserve Bank of Australia’s 2025 annual report revealed that it had reduced the target share of US dollars in its foreign currency portfolio from 55% to 45%. The allocation moved into euros, increasing the euro’s share from 20% to 30%, while its allocations to currencies including the Japanese yen, British pound and Chinese renminbi remained unchanged.
It is tempting to interpret this as the RBA predicting serious weakness in the US dollar, but the decision is unlikely to be that simple. The RBA manages its reserves for safety, liquidity and diversification, rather than trying to make short-term bets on currency movements. Reducing its largest currency exposure may simply have been sensible portfolio management.
However, a 10 percentage point reduction is still meaningful. The annual report does not reveal exactly when the change was made, so it cannot be directly linked to the US-led market turmoil during the first half of 2025. Even so, it occurred during a period when concerns around US debt, tariffs, political stability and the independence of the US Federal Reserve were becoming increasingly difficult for global reserve managers to ignore.
The RBA was also not alone. Central banks around the world have been gradually reducing their reliance on the US dollar, although many emerging-market central banks have chosen to increase their gold reserves rather than move heavily into euros. More than 1,000 tonnes of gold were purchased by central banks during 2024, continuing a broader move towards assets that are not dependent on another country’s currency or financial system.
This does not mean the US dollar is about to lose its position as the world’s main reserve currency. There is still no obvious replacement with the same depth, liquidity and global acceptance. It does suggest, however, that even conservative institutions such as the RBA see value in spreading their risk more widely.
At home, Australians are facing a much more immediate concern. Stronger-than-expected inflation data has pushed three of Australia’s four major banks to predict another RBA interest rate rise this year. Financial markets are now pricing an approximately 87% chance of an increase before the end of 2026, with the possibility of a September or November move being discussed.
The cash rate is already sitting at 4.35% following three increases this year. Another rise would place even more pressure on mortgage holders, particularly recent buyers who entered the market with large loans and little room left in their household budgets.
This is where the RBA’s task becomes increasingly uncomfortable. Inflation remains above its target, but housing prices are falling, unemployment is gradually rising and previous rate increases are still working their way through the economy. Another increase may help reduce spending, but it will not build more homes, improve productivity or directly fix higher energy, insurance and food costs.
For households already cutting back, there may be little spending left for the RBA to remove. Unfortunately, while inflation remains stubborn, meaningful mortgage relief still appears some distance away.
Gold and silver continue to benefit from this uncertainty. Concerns surrounding currencies, government debt and inflation are encouraging investors and central banks to think more carefully about where they hold their wealth. The RBA may have chosen the euro rather than gold, but its decision still supports the wider argument for diversification away from relying too heavily on any single currency.
Indicators
Weekly projection STRONG BUY, Monthly projection STRONG BUY
Weekly technical indicators chart.
Learn more about technical indicators and what they mean.
| Indicator | Value |
|---|---|
| RSI(14) | Buy |
| STOCH(9,6) | Neutral |
| STOCHRSI(14) | Overbought |
| MACD(12,26) | Buy |
| ADX(14) | Buy |
| Williams %R | Overbought |
| CCI(14) | Buy |
| ATR(14) | Less Volatility |
| Highs/Lows(14) | Buy |
| Ultimate Oscillator | Buy |
| ROC | Buy |
| Bull/Bear Power(13) | Buy |
Central banks hold foreign currency reserves so they can respond to financial disruption, support their domestic currency and meet international payment obligations. These reserves are generally invested in highly liquid government securities that can be accessed quickly when required.
The US dollar has traditionally made up the largest portion of these reserves because it is widely used in global trade and supported by the world’s deepest government bond market. However, holding too much in one currency creates concentration risk. If that currency weakens or becomes less reliable, the value and usefulness of the reserve portfolio can be affected.
This is why central banks spread reserves across different currencies and, increasingly, gold. Gold does not rely on the financial strength or political decisions of another country. It can be held directly, carries no risk of another party failing to repay and has maintained international acceptance across very different economic periods.
The RBA’s decision to reduce its US dollar allocation does not mean it has abandoned the dollar. The US currency still represents 45% of its foreign currency portfolio and remains its largest single holding. The change simply shows that diversification matters, even to Australia’s central bank.
This article is general information only and does not constitute financial advice. Precious metals and financial markets can be volatile, and past performance is not a reliable indicator of future results. Please conduct your own research and consider your personal circumstances before making any investment decision.
