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Central banks in advanced economies expect gold’s share of global reserves to rise at the expense of the US dollar as these institutions look to follow the lead of emerging markets in buying gold.
Nearly 60 percent of rich country central banks believe gold’s share of global reserves will rise over the next five years, up from 38 percent of respondents last year, according to the World Gold Council’s annual survey. group.
About 13 percent of advanced economies plan to increase their gold holdings next year, up from 8 percent last year and the highest level since the survey began. This follows the pattern of emerging market central banks, which have been major buyers of gold since the 2008 global financial crisis.
Meanwhile, a growing share of advanced economies – 56 percent, up from 46 percent last year – also think the dollar’s share of global reserves will decline over the next 5 years. Among emerging market central banks, 64 percent share this view.
The demand for gold, which comes despite a sharp rise in the price of the yellow metal this year, highlights how allocations to the dollar have been falling as central banks have sought to diversify their holdings through alternative currencies and assets, particularly after the US deployed weapons. with its currency in sanctions against Russia.
“This year we have seen a much stronger convergence. More advanced countries say gold will occupy more global reserves and the dollar will occupy less,” said Shaokai Fan, global head of central banks at the WGC.
“It was not emerging market countries that valued these factors less, but developed markets catching up with emerging market perceptions of gold,” he added.
The survey – one of the few insights into the thinking of publicity-shy reserve managers – found that a record proportion of central banks intend to increase their gold reserves to 29 per cent in the next 12 months since the survey began five years ago. respondents. Almost 40 percent of respondents from emerging markets plan to increase their share.
The main reasons given by central banks for holding gold are its long-term value, its performance during a crisis and its role as an effective diversifier.
Central banks added more than 1,000 tonnes of gold to their reserves in both 2022 and 2023, the WGC said. U.S. sanctions on Russian dollar-denominated assets have fueled a rush among non-Western official financial institutions for high-priced gold—the value of which, unlike fiat currencies, does not rely on any government or bank.
Back-to-back years of record buying, the pace of which has continued this year, has been the driving force behind gold’s rally, which reached nearly $2,450 a troy ounce last month. This is a 42 percent increase since the conflict between Israel and Hamas began in October.
The dollar’s share of the world’s foreign exchange reserves — excluding gold — fell from more than 70 percent in 2000 to about 55 percent last year, according to an IMF survey this month, removing the effect of the U.S. dollar’s appreciation. Including gold, the dollar’s share fell below half, the WGC says.
Although China’s renminbi has made some gains as a reserve currency, uncertainty hanging over the country’s economy has caused the percentage of central banks expecting to increase their share of global reserves to fall from 79 percent last year to 59 percent this year. .
This article has been corrected to say that the price of gold hit a record close to $2,450 last month, not $1,450 as previously stated