Central banks worldwide are significantly increasing their gold reserves in response to escalating geopolitical tensions and economic uncertainties, a World Gold Council study reveals. This trend reflects the critical role of gold in ensuring financial stability and mitigating risks.
The primary drivers of this trend are the need to hedge against inflation and protect assets from geopolitical risks, such as those posed by the Ukraine conflict and subsequent sanctions on Russia, according to experts. Countries are increasingly repatriating their gold reserves to avoid potential sanctions on their foreign-held assets.
This is one of the biggest movements of gold undertaken by the country since 1991, India has moved 100 metric tonnes of its gold stored in the UK to domestic vaults in FY24.
Record buying
In 2022 and 2023, central banks purchased record amounts of gold, with acquisitions totalling 1,082 tonnes in 2022 and 1,037 tonnes in 2023. This surge follows a decade of net buying that began in 2010, reversing the previous decades of net selling.
Gold remains a major part of central banks’ strategies to diversify their portfolios and reduce exposure to foreign currency risks. Unlike currencies and bonds, gold is perceived as a low-risk, real asset that holds value through economic cycles. For instance, the RBI includes gold as about 8% of its reserves.
Traditionally, central banks maintain foreign currency reserves to ensure exchange rate stability and provide liquidity in domestic forex markets. These reserves, however, come with liquidity, interest rate, and credit risks. Investing in gold helps mitigate these risks and provides a stable store of value during times of crisis.
The consistent investment in gold underscores its enduring value as a hedge against inflation and a reliable store of value during economic turmoil. As geopolitical and economic uncertainties persist, central banks are likely to continue bolstering their gold reserves, reaffirming gold’s status as a critical asset for financial stability and risk management.
