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The New Yukon Gold Rush
According to the results of its annual Central Bank Gold Reserves survey released by the World Gold Council (WGC) on Tuesday, 29% of the 70 responses plan to increase their gold reserves over the next 12 months, which is the highest level since WGC began its annual survey in 2018.
The main motivations for central banks to buy gold are a desire to rebalance gold holdings to a more desirable strategic level compared to domestic gold production, as well as to hedge against uncertainty in financial markets, including rising crisis risks and rising inflation, analysts wrote in the report.
Data from the People’s Bank of China (PBOC) showed that China did not add to its gold reserves in May, ending an 18-month-long wave of gold purchases. However, WGC analysts said interest in gold as a diversified reserve remained strong even as China slowed its purchases.
As the dollar’s role as the world’s reserve currency continues to wane, central banks are seeing growing changes in global financial markets and are therefore increasingly diversifying their investments in gold, according to the survey. In the survey, 62 per cent of respondents believe the dollar’s share of foreign exchange reserves will decrease in five years, up from 55 per cent in 2023 and 42 per cent in 2022.
Meanwhile, 69 per cent of respondents believe that gold will account for a greater share in five years’ time, up from 62 per cent in 2023 and 46 per cent in 2022.
The survey also found that central banks in emerging markets and developing economies generally see gold’s role as a monetary metal increasing as the dollar’s light fades. And while central banks in advanced economies remain loyal to the dollar, it has to be acknowledged that gold’s role in the global landscape is changing. in 2023, 38 per cent of respondents from central banks in advanced economies believed that gold’s share of global reserves would rise, a figure which rose to 57 per cent this year.
The analysts noted in the report that central banks in Europe, the Middle East and Africa, which have been the main drivers of gold purchases since the 2008 global financial crisis, appear to be more pessimistic about the dollar’s future share of global reserves and more optimistic about gold.
According to the survey, central banks hold gold because it is seen as a “long-term store of value/inflation hedge”, a “strong performer in times of crisis”, an “effective portfolio diversifier”, and a “no-loading tool” “no default risk”. Interest rate levels, inflation concerns and geopolitical instability continue to dominate central banks’ reserve management decisions, which is largely consistent with last year’s responses.
The report concludes that central banks in emerging economies, as well as a growing number of central banks in advanced economies, are revisiting the strategic role of gold in the face of uncertain geopolitical times and new concerns about financial stability, underscoring the challenging economic and strategic environments faced by both types of central banks.
