Gold Purchases by Central Banks Soar Amid Geopolitical Tensions

The World Gold Council reported that central banks increase gold reserves worldwide purchased 1,136 tones of gold in 2022, a 152% YoY increase. Central bankers are investing in gold due to rising geopolitical tensions, including the ongoing conflict in Ukraine.

Annual Poll Shows Central Banks Plan to Increase Gold Reserves

According to an annual poll conducted by Central Banking Publications, which surveyed 83 central banks managing a combined $7tn in foreign exchange assets, more than two-thirds of respondents plan to increase their gold holdings in 2023. The rise in political and economic instability worldwide has made bullion an attractive safe haven investment.

Geopolitical Risk and High Inflation are Primary Concerns

The HSBC Reserve Management Trends Survey found that most reserve managers rated geopolitical risk as one of their most important concerns, second only to high inflation. Over 40% of respondents identified geopolitical risk as a primary risk factor, up from 23% in the previous year’s poll. Around one-third of those surveyed changed or planned to change their investment strategies due to tensions such as Russia’s invasion of Ukraine and worsening US-China relations.

Gold a Valuable Hedge Against Inflation

Bullion is considered an effective hedge against high inflation, the primary concern of over 70% of those polled. Gold prices are close to an all-time nominal high after a surge in inflation over the course of 2022.

Many Central Banks Purchased Gold in 2022

Non-aligned central banks, such as China, Turkey, and states in the Middle East and Central Asia, were active buyers of gold in 2022, as reported by the World Gold Council. China’s People’s Bank bought 62 tonnes of gold in November and December 2022, which lifted its total bullion reserves above 2,000 tonnes for the first time. Turkey’s official gold reserves rose by 148 tonnes to 542 tonnes over 2022.

Sanctions Against Russia’s Central Bank Lead to Reconsideration of Investment Strategies

The sanctions against Russia’s central bank, which followed Moscow’s invasion of Ukraine, froze around $300bn of Russian central bank assets. However, the central bank’s gold reserves were not affected as they were stored in Russia. Many non-aligned central banks reconsidered where to hold their international reserves after the sanctions.

Renminbi to Become Larger Share of International Reserves

According to the HSBC Reserve Management Trends Survey, most of those surveyed believed that the renminbi would become a larger share of international reserves in the next decade. The changing balance of power in the global economy is reflected in this shift.

Euro and Dollar’s Dominance in Global Reserve Management Threatened

European Central Bank President Christine Lagarde issued a warning. She said that the US-China rift could pose a threat to the dollar and euro’s dominance in global reserve management. IMF data from Q4 2022 showed that the dollar accounted for 58% of all central bank reserves. The euro accounted for slightly over 20%, and the renminbi only 2.7%.

Annual Poll Conducted Between February and Mid-March 2023

83 central banks managing a combined $7tn in foreign exchange assets participated in the HSBC Reserve Management Trends Survey, which was conducted between February and mid-March 2023.

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