Central Banks to Continue Hoarding Gold: Survey Finds 24% Plan to Increase Reserves

Investing.com – Despite global central bank holdings of gold falling in April for the first time in more than a year, central banks are still eager to increase their gold reserves, with 24% saying they plan to buy more of the precious metal in the next 12 months, According to the 2023 World Gold Council (WGC) Central Banks Gold Reserves Survey.

“After record purchases of gold by central banks, the yellow metal continues to be viewed favorably by central banks as a reserve asset,” said the survey of 59 central banks between February 7 and April 7.

Also read:

Also read:

The poll indicated that “these results come amid a backdrop of ongoing geopolitical tensions with the continuation of the war in Ukraine and the continuation of the subsequent macroeconomic repercussions of high inflation and tightening monetary policy.” Adding to these concerns is the banking sector crisis in the United States and Europe that began in early 2023.

Central banks also prefer gold because of its historical importance, its performance in times of crisis, and its being a store of value, as it has the characteristics of a hedge against inflation and ongoing geopolitical and systemic financial risks.

The survey said, “The ‘historic position’ of gold remains the main reason central banks hold gold.

Also read:

The gap between emerging versus developed central banks

Overall, the view on gold remains optimistic, with 71% of respondents saying that global central bank gold holdings will increase in the next 12 months compared to 61% last year.

The survey indicated that there is also a growing gap in how emerging markets and developing economies think about gold allocation versus developed economies.

When asked about the future share of gold in global reserves, 68% of respondents in emerging economies expected the share of gold to rise compared to 38% of respondents in developed economies. Even a small percentage of developing market central banks said they expected gold’s share of reserves to rise above 25% – a significant shift from last year’s results, with zero respondents indicating this.

Moreover, developing market central banks – the main buyers of gold since the 2008 global financial crisis – are more pessimistic about the future of the US dollar. Whereas, 58% of respondents from developing markets believe that the US dollar’s share of global reserves will decrease, compared to only 46% of respondents in developed economies.

Also, only 20% of respondents from emerging markets said the US dollar’s share of global reserves will remain unchanged five years from now, compared to 54% of respondents in the developed economy.

The World Gold Council cited “selected comments” from respondents. Which reported that “the trend over the past few decades has been for countries to diversify their reserve holdings and reduce their dependence on the US dollar. Many central banks have actively diversified their reserves by increasing their holdings of other currencies, such as the yen and Chinese yuan as well as gold.”

Emerging market countries see gold as playing a strategic role amid geopolitical uncertainty. Where “concerns about sanctions” was added as a new determinant of holding gold, it was cited by 25% of developing countries versus 0% of developed economies.

The Bank of England remained the most popular storage location, with 53% of respondents storing gold there.

In the past year, central banks have bought record amounts of gold, boosting reserves with an asset seen as a safe haven during economic crises and an ongoing de-dollarization trend.

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

Central bank holdings decline

Global central bank holdings of gold declined for the first time in more than a year, according to the World Gold Council report. This is due to Turkey selling 80 tons of gold, bringing gold holdings down to 491 tons. The highest number of gold reserves recorded is 542 tons.

The decline in the gold reserves of the Central Bank of Turkey is the first of its kind since March 2022.

“The monthly decline is not a reversal,” says Krishan Gopaul, senior analyst at the World Gold Council. “Friday’s data shows that the decline was mainly due to Turkey, and not to a wave of selling from other central banks.”

The report indicates the reasons for the decline are limited to:

Local dynamics, not a change in the long-term gold policy.

Gold was sold in the local market to meet the very strong demand for bars, coins and jewellery.

The World Gold Council is following the situation in Turkey to see if the selling will continue.

The Central Bank of Kazakhstan also sold 13 tons of gold, the Central Bank of Uzbekistan 2 tons, and Kyrgyzstan 0.6 tons.