Gold, an increasingly strategic asset for Central Banks

In 2022 and 2023, central banks around the world purchased more than 1,000 tonnes of gold, two record years. L’World Gold Council annual survey, carried out with 70 central banks, allows us to understand why they favor this asset in the management of their international reserves. Central banks have not always been attracted to gold for the management of their reserves; In the 1990s and early 2000s, countries that had accumulated very large quantities of gold during the gold standard period were net sellers, to the point of affecting the price of gold. In 1999, the main European Central Banks even signed an agreement to collectively limit their sales in order to contain the fall in prices.

But the financial crisis of 2007-2008 completely changed the situation: central banks suddenly became net buyers of gold again, the golden metal being one of the rare assets to have resisted instability. This is still one of the main criteria for holding gold today since 82% of the central banks surveyed highlight the ability of gold to perform well in times of crisis.

More generally, it is the safe-haven qualities of gold that explain the appeal of central banks, both in developed and emerging countries: 88% of them believe that it is relevant to hold gold. gold because it is a good long-term store of value and a hedge against inflation, 76% believe that the gold metal allows you to effectively diversify your portfolio and 72% highlight the absence of default risk.

“A hedge against geopolitical risk”

But the survey also underlines that certain less “classic” criteria are increasingly put forward in the management strategy of international reserves, in particular by the Central Banks of emerging countries. 54% favor gold because it does not present political risk, while only 33% of central banks in developed countries consider this criterion relevant. Nearly a quarter of emerging institutions wish to protect themselves against possible sanctions and anticipate a change in the international monetary system, when no developed central bank has put forward one of these two criteria. Gold, in addition to its qualities as a safe haven, is now also seen as a hedge against geopolitical risk and the instrument of choice in the “dedollarization” of international reserves.

In an increasingly tense geopolitical and financial context, gold has once again become a strategic asset for Central Banks. Only 9% in 2019 declared that they intended to increase their gold reserves, before the onset of the Covid crisis, the outbreak of the war in Ukraine and the resurgence of the conflict. Israeli-Palestinian. In 2023, 29% anticipate an increase in their gold reserves in the next 12 months, the highest since this survey was carried out. For the next five years, they are even 69% to consider strengthening their holding of the gold metal. In 2023, central bank purchases represented nearly a quarter of global gold demand; This support has been a major factor in the rise in gold prices and appears to be sustainable, at least for the next few years. The “barbaric relic” denounced by Keynes in 1923 has returned to the forefront.