Global central banks posted their largest ever annual purchase of gold in 2022 — an estimated 1,083 metric tons. And the buying spree has continued, with 387 metric tons of net gold purchased in the first half of 2023.1
This trend is no surprise given how gold’s role in the global financial system and among central banks has evolved. Between the collapse of the Bretton Woods Agreement in 1971 and the early 2000s, central banks were mostly net sellers of gold. But in the aftermath of the Global Financial Crisis (GFC) of 2008, central banks became net buyers and have maintained this position ever since.
Figure 1: Central Banks Switched to Net Buyers in 2010 Following Multi-Decade Role as Net Sellers
Increasingly, gold is considered an alternative to fiat reserve currencies such as the US dollar, euro, and Japanese yen. And for good reason. For institutions and governments with long time horizons, gold’s unique characteristics — liquidity, historical role, lack of default risk, homogeneity, and ubiquity — make it a natural option as a reserve asset and store of value.
Based on gold’s inherent qualities, central banks’ rationale for gold purchases following the GFC has been straightforward. Gold has been utilized by central banks to
A recent World Gold Council survey2 supports this — findings point to gold’s liquidity, store of value, and diversification as characteristics leading central banks to hold gold in their reserves.
|Top 5 Reasons Central Banks Hold Gold||Percentage of Respondents Who Agreed (%)|
|Gold’s performance during times of crisis||74%|
|Long-term store of value/inflation hedge||74%|
|Effective portfolio diversifier||70%|
|No default risk||68%|
Source: 2023 Central Bank Gold Reserves Survey. World Gold Council. May 2023. Methodology: For the sixth year in a row, the World Gold Council has worked with YouGov to conduct a survey of central banks. Fieldwork was conducted between February 7 and April 7, 2023, with a total of 59 eligible responses (a slight increase from 57 last year) representing a 38% response rate amongst all central banks who were contacted. Data in the report is shown at an overall level but is also sub-divided by advanced economy countries and Emerging Market and Development Economy (EMDE) countries as defined by the IMF.
In the same World Gold Council survey, emerging market (EM) economies ranked “serves as a geopolitical diversifier” as more relevant (61%) compared to their developed economy counterparts (45%). Amid the recent increase of geopolitical uncertainty, this divided view of gold reserve holdings has widened with another factor driving purchases for some governments — anonymity.
In recent years, the Society for Worldwide Interbank Financial Telecommunications (SWIFT) payments system has been used to impose sanctions, both on Iran in 2015 and on Russia in 2022 — a tactic some have described as “weaponization.”
If a government perceives international sanctions as a real threat, then switching from US dollar assets to an anonymous counter like gold becomes extremely attractive, particularly in scenarios of multi-lateral sanctions by several reserve currency nations (Russia in 2022, for example).
Global central banks have dramatically expanded their balance sheets and increased global liquidity over the past 25 years. These elevated debt and liquidity levels, which are likely to persist, support the long-term demand and price outlook of gold.
In the 21st century, the explosion of debt has been tied directly to increased liquidity and easy monetary policy. In fact, central bank balance sheets in the US, EU, UK, and Japan have risen nearly 10-fold since 2000, from US$2.5 trillion (T) to US$22.0T.3
Figure 2: Global Liquidity and Debt Levels Continue to Increase
The price of gold increased over 586% with the surge of global liquidity and debt.4 This is in part due to individual and institutional investors shifting into gold to combat pervasive, long-term risks stemming from the central banks’ increased debt and liquidity.
Emerging markets, led by China and Russia, have accounted for the lion’s share of net gold purchases in recent years. Even so, EMs’ gold reserves remain well below their developed-market peers in both total gold holdings and gold’s percentage of total foreign exchange (FX) reserves.
Developed markets, in contrast, control 66% of the gold held globally by the official sector, and their gold holdings account for 58% of aggregate FX reserves among their peers (Figure 3).
While the gold held within all emerging and frontier market central banks accounts for 34% of the global total, these holdings only amount to 19% of total FX reserves among these economies — one-third of the weighting held by developed economies.
This gap showcases the potential for emerging markets to accumulate further gold reserves, as well as the critical role gold plays in diversifying positions in markets currently dominated by fiat currencies like the US dollar.
The reasons driving central bank gold purchases — to diversify their reserves, improve their balance sheets, and gain liquidity from an asset without credit risk — likely won’t change given today’s increasing economic and geopolitical risks. Plus EM central banks remain under-allocated compared to their developed market peers.
Therefore, as we look ahead, we expect central banks to continue their role as net purchasers of gold. This should support the outlook for global gold demand beyond traditional consumer and investor demand sectors and provide further diversified support for gold’s long-term price outlook.
For investors looking to take advantage of this opportunity alongside central banks’ purchasing, gold can be accessed in a myriad of ways — ranging from physical bullion to financial instruments like mutual funds and futures contracts. Gold-backed ETFs, however, provide a unique blend of flexibility, transparency, and accessibility to the gold market, all while offering cost-efficient liquidity advantages within an ETF wrapper.
Or, get the latest on gold.
Gold Spot Price
The price in spot markets for gold. In US dollar terms, spot gold is referred to with the symbol “XAU", which refers to the price of one troy ounce of gold in USD terms.
1 World Gold Council, Gold Demand Trends Q2 2023, as of June 30, 2023.
2 2023 Central Bank Gold Reserves Survey. World Gold Council. May 2023.
3 Bloomberg Finance, L.P., State Street Global Advisors, as of July 31, 2023.
4 Bloomberg Finance, L.P., State Street Global Advisors. Gold represented by gold spot price in US$/oz. From July 31, 1998 – July 31, 2023.
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