Gold is now back in vogue among central banks worldwide as the ultimate safe asset. The war sparked by Russia’s full-scale invasion of Ukraine in February 2022 has propelled a sharp and apparently self-feeding increase in the number of central banks purchasing the yellow metal. This has spread well beyond China, Russia and other countries interested in setting up alternative systems to the dollar-based monetary order.
The driving force behind central banks’ gold purchases has now widened into a broader desire for asset diversification, together with some qualms about a weakening of the dollar’s longer-term international role.
Building on OMFIF’s long-run analysis on the ‘Seven Ages of Gold’, a report on ‘Gold and the new world disorder’ in partnership with Commodity Discovery Fund and GoldRepublic, explores new developments in central bank gold policies. In the latest stage of gold reserve trends over the past 200 years, central banks are reverting to a historical pattern enshrining gold’s role as a safe asset.
When conflict and uncertainty abound, the gold price normally rises. The latest ‘Rebuilding’ Period VII in OMFIF’s ‘Seven Ages’ has been underway since the financial crisis in 2008 and seem to have some way further to run.
The report explains the reasons why central bank gold purchases have surged, with countries as wide-ranging as the Czech Republic, Hungary, Ireland, Poland, Qatar and Singapore joining traditional buyers such as the central banks of China, Turkey and India.
One of the background motivations for the newfound popularity of gold among central European central banks has been growing recognition of gold’s usefulness as a balance sheet protection instrument. Adam Glapiński, president of Narodowy Bank Polski, who has announced the bank will lift the share of gold in overall reserves to 20%, says: ‘The purchases of gold conducted by NBP have not only increased the prestige of the Polish central bank, but also improved the financial security of Poland, which is particularly important in the face of the current tense geopolitical situation.’
Another factor is anticipation of possible radical measures by US President-elect Donald Trump, some with implications for monetary policy. In a fraught international environment, as a president whose hallmark is unpredictability moves back into the White House, gold may be a beneficiary of any turbulence that could ensue.
Download OMFIF’s Gold and the new world disorder report here.