Central Banks Look to Increase Gold Reserves as Geopolitical Worries Mount

By Yusuf Khan

Nearly a quarter of central banks are looking to increase gold reserves this year, spurred on by geopolitical worries, interest rate concerns and rising inflation pressures.

Up to 24% of central banks were looking to raise gold holdings in 2023, according to a new survey from the World Gold Council.

In particular, emerging market central banks were more keen to increase reserves of the precious metal, the industry body said, while 71% of the survey's respondents expected overall central bank gold holdings to rise this year, compared with 61% last year.

Gold, which has long been used as a store of value and hedge against economic strife, is still seen as attractive by central banks, according to Shaokai Fan, head of central banks at the WGC. "There's been a major shift in how central banks perceive the dollar and the role of gold," said Fan. "Central banks move at a slow pace and last year's events were a shock to everybody," he said, adding that current moves support last year's gold buying spree.

Last year, central banks bought a record 1,136 metric tons of gold amid rising interest rates from key central banks such as the Federal Reserve, geopolitical turmoil stemming from the war in Ukraine and higher rates of inflation.

This year, concerns over the U.S. banking sector, with the collapse of Silicon Valley Bank, were cited as reasons for increasing gold holdings. However, the top reason to hold gold was interest rate concerns, with 97% of respondents citing it in the survey. Worries over inflation and concerns about current or future pandemics were also highly cited.

Emerging-market and developed-economy central banks had diverging views on a number of aspects, including the U.S. dollar's place in global reserves.

More than half of advanced economy respondents believe the dollar's share of global reserves will remain unchanged five years from now, compared with only 20% of emerging market and developing economy respondents, the WGC said. "While 46% of advanced economy respondents believe the U.S. dollar's share of global reserves will fall, 58% of EMDE [emerging markets and developing economies] respondents believe it will do so," it said.

Emerging-market central banks were more likely to point to concerns such as "shifts in global economic power" as a reason for this, while gold serving as a geopolitical diversifier was also a common reason provided. By contrast, developed economies were more likely to cite environmental, social and governance reasons.

To add to this, 68% of emerging market central banks expect gold holdings to rise over the next five years, while just 38% of advanced economies think the same.

"There was basically a lot more pessimism about the U.S. dollar and a lot more optimism for gold," said Fan. "The optimism wasn't toward RMB or the euro but toward gold." Emerging-market central banks have been the key buyers of gold in the last few years and so were "putting their money where their mouth is," Fan said.

Sanctioned central banks such as Russia, Belarus and Afghanistan weren't included in the survey.

Write to Yusuf Khan at yusuf.khan@wsj.com

(END) Dow Jones Newswires

May 30, 2023 04:14 ET (08:14 GMT)

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