Rich countries plan to buy more gold despite record price

Advanced economies' central banks expect gold's share of global reserves to rise at the expense of the US dollar while looking to follow the lead of emerging markets in buying bullion.

Almost 60% of rich countries' central banks believe that gold's share of global reserves will rise in the next five years, up from 38% of respondents last year, according to an annual survey conducted by the World Gold Council, an industry promotion group.

According to the 2024 Central Bank Gold Reserves (CBGR) survey, which was conducted between 19 February and 30 April 2024 with a total of 70 responses, 29% of central banks respondents intend to increase their gold reserves in the next twelve months, the highest level observed since beginning this survey in 2018.

That is, about 13% of advanced economies plan to increase their gold holdings in the next year, up from around 8% last year and the highest level since the survey began, reports the Financial Times.

That follows the lead of emerging market central banks, which have been the main purchasers of gold since the 2008 global financial crisis.

Meanwhile, a rising proportion of advanced economies — 56%, up from 46% last year — also think the dollar's share of global reserves will fall over the next five years. Among emerging market central banks, 64% 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 declining as central banks have sought to diversify their holdings through alternative currencies and assets, especially after the US weaponised 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.

"It wasn't the emerging market countries evaluating these factors less but advanced markets catching up to how emerging markets feel about gold," he added.

The survey — one of the few insights into the thinking of publicity-shy reserve managers — found that a record share of central banks since the survey began five years ago intend to increase their gold reserves over the next 12 months, at 29% of respondents. Of the emerging market respondents, nearly 40% plan to raise their holding.

The main reasons cited by central banks for holding gold are its long-term value, performance during a crisis and its role as an effective diversifier.

In 2023, central banks added 1,037 tonnes of gold – the second highest annual purchase in history – following a record high of 1,082 tonnes in 2022, according to the WGC. 

US sanctions on Russia's dollar-denominated assets prompted a rush among non-western official financial institutions for bullion — the value of which does not rely on any government or bank, unlike fiat currencies.

The consecutive years of record buying, the pace of which has continued into this year, has been a driving factor behind gold's rally to nearly $2,450 per troy ounce last month. It is up 42% since the Israel-Hamas conflict began in October.

The dollar's share of global foreign exchange reserves — excluding gold — has plummeted from more than 70% in 2000 to about 55% last year, stripping out the effect of US dollar appreciation, according to research from the IMF this month. Including gold, the dollar's share has dropped below half, the WGC says.

Although the Chinese renminbi has made some gains as a reserve currency, the uncertainty hanging over the country's economy has meant that the percentage of central banks expecting it to increase its share of global reserves fell from 79% last year to 59% this year.