Survey shows record central bank interest in gold purchases

Gold Fever! Central Banks race to stock up amid dollar doubts

by Faruk Imamovic
Survey shows record central bank interest in gold purchases
© Getty Images/Mario Tama

Amid fluctuating markets and geopolitical tensions, central banks from both emerging and advanced economies are increasingly turning to gold as a stable reserve asset. The World Gold Council (WGC) released a survey on Monday indicating a substantial uptick in the interest for gold, with a record 29% of the 70 surveyed central banks planning to increase their gold reserves within the next year.

Diversifying Beyond the Dollar

This trend is not confined to the emerging economies traditionally known for diversifying away from the US dollar, such as China and its allies. Advanced economies are also showing a keen interest in bolstering their gold reserves.

According to the survey, which was conducted from February to April, about 15% of central banks in advanced economies are looking to purchase more gold, marking the highest rate since 2019. In emerging markets, approximately 40% of central banks intend to add gold to their reserves in the coming year.

The motivation for this shift is multifaceted. Central banks cite the need to rebalance reserves and hedge against various risks including inflation, exposure to the US dollar, and broader market instability. Significantly, eight out of 20 responding central banks have also pointed to heightened economic risks from countries that issue reserve currencies, notably due to factors like the increasing US budget deficit.

The Waning Dominance of the Dollar

As central banks accumulate gold, there's a corresponding shift in perspective regarding the US dollar's dominance as the world’s primary reserve currency. The survey revealed that 56% of central banks from advanced economies and nearly two-thirds from emerging markets anticipate a decline in the dollar’s share of global reserves over the next five years.

This sentiment has been amplified by recent geopolitical events, such as the sweeping sanctions against Russia following its 2022 invasion of Ukraine, sparking concerns among other nations about potential exclusion from the US dollar-based financial system.

Despite these concerns, the dollar remains the most dominant currency in foreign exchange reserves globally. However, its share has experienced what the International Monetary Fund describes as a "stealth erosion," declining from over 70% in 2000 to about 55% by the end of 2023.