Central banks around the world are actively returning their gold reserves home and expect an increase in purchases of this asset amid growing geopolitical risks. Almost nine out of ten central banks surveyed forecast an increase in global gold reserves over the next year, and 45% expect to increase their own reserves.
These findings are based on the annual survey of central banks on gold reserves, conducted by the World Gold Council from February to May among 74 financial institutions. Monetary authorities continue to view gold as a key protection against inflation, geopolitical upheavals, and currency risks, despite the recent decline in prices during the conflict in Iran.
Increased Domestic Storage and Diversification
More and more central banks are choosing to store a larger portion of their gold within their own country. Over the past 12 months, 9% of respondents increased domestic storage, compared to 5% the previous year. Additionally, 10% of those surveyed diversified their foreign storage locations, while in the previous year’s survey, this figure was only 2%.
Analysts note that the deterioration of geopolitical relations is driving a reevaluation of gold storage strategies. The freezing of approximately $300 billion in Russian foreign assets after the invasion of Ukraine has heightened concerns about the accessibility of reserves stored abroad during periods of political tension. This is prompting some central banks to repatriate their gold.
Giovanni Staunovo, a commodity analyst at UBS, stated that this trend of repatriation has been observed since 2022. Gold often has symbolic value as a national asset, creating an additional incentive for storing reserves at home. For example, the central bank of France recently reduced its exposure by selling gold reserves in the US and buying an equivalent amount of gold in Europe without physically moving the bars.
Purchase Forecasts and Market Stability
Central banks have purchased an average of 1,000 tons of gold per year over the past four years, which is twice the average for the previous decade. Giovanni Staunovo forecasts that central banks will buy 750-1,000 metric tons of gold this year. According to him, such demand may not lead to a sharp increase in gold prices on its own, but will provide a stable foundation for the market and help offset softer demand for jewelry and investments.
The World Gold Council’s survey also showed that 7% of respondents plan to increase domestic storage over the next year, and 9% expect to diversify their foreign storage arrangements. Dan Coatsworth, a market leader at AJ Bell, said that the survey’s findings reflect broader efforts by central banks to reduce the concentration of their assets and storage locations, as “it makes sense to diversify risks in investments, including where assets are stored”.
Source: CNBC