Gold’s Strategic Role Grows as Central Banks Mitigate Geopolitical Risks
Central banks worldwide are ramping up their gold holdings as geopolitical tensions influence reserve management strategies. A recent survey by the Official Monetary and Financial Institutions Forum (OMFIF) reveals that 30% of central banks plan to increase their gold allocations in the next one to two years. The survey also indicates a rise in the number of central banks holding physical gold, increasing from 71% last year to 82% this year.
The report emphasizes that the motivations for purchasing gold are shifting towards strategic reasons rather than purely financial ones. Protection against geopolitical risks is now cited by 51% of respondents, an increase of 11% from the previous year.
Most central banks expect gold above $5,000 an ounce
The survey indicates that 61% of central banks anticipate gold prices will range between $5,000 and $6,000 per ounce by June 2027. However, 28% of respondents believe current gold prices are already too high, potentially discouraging further purchases. This comes despite a recent decline in gold prices, with spot gold falling 0.2% to $4,008.94 per ounce, marking its lowest level since November. Analysts attribute this decline to expectations of persistent inflation, which may lead the US Federal Reserve to maintain or raise interest rates.
Marex analyst Edward Meir noted that market unease regarding the stability of the monetary outlook is contributing to the pressure on gold prices, as investors are not seeing much positive movement.
Central banks look beyond the US dollar
The OMFIF survey also points to a gradual shift away from the US dollar in reserve portfolios, especially among emerging market central banks. The euro and China’s renminbi are emerging as preferred alternatives, with 29% of respondents planning to increase euro holdings in the long term, up from 22% last year. However, the report highlights that neither currency fully meets the needs of reserve managers. The euro lacks a deep safe asset market, while the renminbi faces constraints due to market structure and geopolitical issues.
AI adoption accelerates among central banks
The survey reveals a growing trend of artificial intelligence adoption among central banks to enhance efficiency and decision-making. In developed economies, 89% of central banks have implemented some form of AI, compared to 44% in emerging markets. The report suggests that reserve managers are adapting to a landscape of persistent uncertainty rather than waiting for stabilization. The survey concludes that the previous assumption that public investors could wait for normal conditions is becoming increasingly unrealistic.
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