Geopolitical uncertainty and volatile global markets have kept resilient assets like gold front of mind for central banks, according to a new report by the World Gold Council (WGC).
Collecting data from 70 of the world’s central banks, its latest survey found 81 per cent believe global central bank gold holdings will rise in the next 12 months.
With this, almost a quarter of central banks said they plan to add to their own gold reserves within the next year, the highest level observed since the survey began in 2018.
This comes off the back of central banks’ second highest annual purchase of gold in history, adding 1,037 tonnes in 2023, following a record high 1,082 tonnes in 2022.
“The planned purchases are chiefly motivated by a desire to rebalance to a more preferred strategic level of gold holdings, domestic gold production, and financial market concerns including higher crisis risks and rising inflation,” the WGC explained, adding that gold “continues to be viewed favourably by central banks as a reserve asset”.
According to the survey of global central banks, nearly 70 per cent of respondents believe gold will occupy a higher proportion of global reserves in five years’ time, up from 62 per cent in 2023.
In particular, they cited interest rate levels, inflation concerns, and geopolitical instability among the top factors influencing their reserve management decisions. Interestingly, central banks in emerging market and developing economies (EMDE) were more concerned by “shifts in global economic power” than their advanced economy peers.
In terms of the appeal of gold allocations, the survey found gold’s legacy (71 per cent) waned in comparison to other factors such as its long-term value (88 per cent), performance during a crisis (82 per cent), and its role as an effective portfolio diversifier (76 per cent).
“Many of these institutions have become more aware of the asset’s value as a way to manage risks and diversify their portfolios,” observed Shaokai Fan, global head of central banks and head of Asia-Pacific at the WGC.
Year to date, the price of the commodity has climbed around 13.5 per cent, hitting a record high of US$2,427/oz in mid-May, before pulling back by the month’s end. Meanwhile, holdings rose to 3,088 tonnes last month, buoyed by European and Asian flows, while physically backed gold ETFs saw their first monthly inflow since May last year.
Fan described it as “remarkable” that despite record demand from the official sector in the last two years, coupled with climbing gold prices, many reserve managers still maintain their enthusiasm for gold.
“While influences like price may temporarily slow down purchases in the near term, the broader trend remains in place, as managers recognise gold’s role as a strategic asset in the face of ongoing uncertainty,” he said.
Divergence between global regions
The survey found other differences in the responses received from advanced economy respondents and EMDE respondents, including speculation around the price of gold. While over half (57 per cent) of advanced economy respondents think gold’s share will rise, as many as 75 per cent of EMDE respondents believe it will do so.
Meanwhile, 35 per cent of advanced economy respondents think that it will remain unchanged five years from now, a view shared by only 9 per cent of EMDE respondents.
“EMDE central banks, which have been the primary driver of gold buying since the 2008 global financial crisis, appear to be more pessimistic about the US dollar’s future share of global reserves and more optimistic about that of gold,” the WGC stated.
“Nonetheless, it is notable too that the percentage of advanced economy respondents who believe that gold’s share of global reserves will rise has increased significantly from 38 per cent in 2023 to 57 per cent in 2024.”
Last month, the WGC highlighted that the US dollar bull narrative “could be running short of arguments”, pointing out that a dollar peak has historically been good for gold.
In the event of a no-landing scenario, it said: “As expectations reset higher, it will become progressively more challenging for the economy to deliver the upside surprises needed to extend the rise in US yields and the dollar.”
Meanwhile, in the case of a soft-landing scenario, it expects the US dollar to grow increasingly sensitive to weaker US data particularly as it remains close to the top end of its 52-week range.
Additionally, improved global growth outside the US could temper the dollar performance, it noted.
“While gold has largely brushed off the stronger dollar recently as Eastern buyers have shifted their behaviour (buyers in emerging markets appear to be less attentive to the US dollar or Western monetary policy expectations), a weaker dollar going forward could bring back Western investors who are waiting for a trigger,” the WGC said.
