Central banks in advanced economies are poised to boost their gold reserves, even as the precious metal hits record prices. Following the lead of emerging markets, these institutions anticipate gold’s share of global reserves will increase, often at the expense of the US dollar.
Survey Insights: Growing Preference for Gold
A World Gold Council (WGC) survey reveals that almost 60% of central banks in wealthy nations expect gold’s share of global reserves to rise over the next five years, a significant jump from 38% last year. Additionally, 13% plan to increase their gold holdings in the coming year, up from 8% last year, marking the highest level since the survey began.
Emerging market central banks have been the primary gold buyers since the 2008 financial crisis. This year, 56% of advanced economies’ central banks believe the dollar’s share of global reserves will decline over the next five years, compared to 46% last year. Among emerging markets, 64% share this outlook.
Factors Driving Gold Demand
Despite soaring prices, the sustained demand for gold highlights a strategic shift by central banks to diversify their holdings away from the dollar. This trend has intensified following the US’s use of its currency in sanctions against Russia. “This year we’ve seen much stronger convergence. More advanced countries are saying that gold is going to occupy more of global reserves and the dollar will be less,” said Shaokai Fan, global head of central banks at the WGC.
A record 29% of central banks plan to increase their gold reserves in the next 12 months. For emerging markets, nearly 40% of respondents intend to boost their gold holdings. Central banks cite gold’s long-term value, crisis performance, and diversification benefits as key reasons for holding the metal.
Impact on Gold Prices and Dollar Reserves
Central banks added over 1,000 tonnes of gold to their reserves in both 2022 and 2023. This buying spree, driven by non-western financial institutions seeking alternatives to dollar-denominated assets, has contributed to gold’s rally to nearly $2,450 per troy ounce last month, a 42% increase since the Israel-Hamas conflict began in October.
The dollar’s share of global foreign exchange reserves, excluding gold, has dropped from over 70% in 2000 to about 55% last year. Including gold, the dollar’s share has fallen below half, according to WGC data. While the Chinese renminbi has seen some gains as a reserve currency, economic uncertainties have reduced the percentage of central banks expecting its share of global reserves to rise, from 79% last year to 59% this year.
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