Central banks look to boost gold reserves: World Gold Council

Most central banks now expect gold to make up a greater share of reserves, the World Gold Council found in a study that followed a historical high level of central bank gold buying in 2022.

Central banks added a whopping 1,136 tonnes of gold worth some $70 billion to their stockpiles last year, by far the most for any year in records. The survey also points to the trend of de-dollarisation continuing over the coming years with half of banks expecting the greenback’s share of reserves to decline.

“Our 2023 survey revealed that 24 per cent of central banks intend to increase their holding reserves in the next 12 months. Furthermore, central banks’ views towards the future role of the US dollar were more pessimistic than in previous surveys. By contrast, their views towards gold’s future role grew more optimistic, with 62 per cent saying that gold will have a greater share of total reserves compared to 46 per cent last year,” WGC said.

The value of gold reserves in the Central Bank of the UAE has increased 13 per cent year-on-year in 2022 to $3.5 billion. However, in the 2023 first quarter, gold reserves decreased to 74.98 tonnes from 79.95 tonnes in the fourth quarter of 2022, data shows.

"These results come amidst a backdrop of ongoing geopolitical tensions as the war in Ukraine continues and the ensuing macroeconomic fallout of prolonged inflation and tighter monetary policy persists," the survey noted. "Adding to these concerns is the banking sector crisis in the US and Europe, which began in early 2023."

Central banks also like gold due to its historical position, performance in times of crisis, store of value, inflation hedge properties, and ongoing geopolitical and systemic financial risks. Gold has been an essential component in the financial reserves of nations for centuries, and its appeal is showing no sign of diminishing, with central banks set to be net purchasers of gold once again this year. Indeed, central banks now hold more than 35,000 metric tonnes of the metal, about a fifth of all the gold ever mined.

Last year, central banks bought record quantities of gold, boosting reserves with an asset viewed as a safe haven during economic distress and an ongoing de-dollarisation trend.

During the first quarter of this year, central banks added 228 tonnes to their gold reserves, marking a record pace for the first three months of the year since data collection began in 2000, according to WGC.

WGC’s 2023 Central Bank Gold Serves Survey shows that half of central banks surveyed believe the percentage of reserves in dollars in five years will be between 40-50 per cent while just over a quarter believe it will remain unchanged. A majority of central banks expect a slight increase in the proportion of total reserves being denominated in gold over the next five years, with developing economies primarily driving this view. Seven in 10 central banks surveyed believe that gold reserves will increase in the next 12 months. This is a 10-point increase from last year.

Recently, Iraq’s central bank boosted its gold reserves by about 2.0 per cent in a single day as part of what it calls a gradual plan to stock up on the precious metal that is seen as a traditional haven in times of economic distress. Iraq bought 2.5 tonnes of bullion to bring its reserves to 132.73 tonnes. More recently, European Union members Poland and Hungary have been making regular additions to their holdings.

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