WGC: Central Banks Plan to Boost Gold Allocations as US Dollar Outlook Declines

Diverging priorities between advanced and emerging economies

Data from the survey shows a clear distinction between the motivations of central banks in advanced economies and those in emerging markets and developing economies (EMDE).

While interest rate levels remain a primary concern across both groups, EMDE central banks show significantly higher concern regarding geopolitical instability and trade frictions.

Following the outbreak of conflict in the Middle East, 95 percent of EMDE respondents identified the geopolitical situation as a relevant factor in their reserve decisions, compared to 67 percent of advanced economy central banks.

Similarly, 60 percent of EMDE managers cited potential trade conflicts and tariffs as relevant factors, nearly double the 33 percent reported by their advanced economy counterparts.

These differing risk assessments affect why institutions hold bullion. Though 90 percent of all respondents view gold's performance during crises as a key driver, 85 percent of EMDE central banks value the asset as a geopolitical risk hedge, compared to only 56 percent in advanced economies.

Conversely, advanced economy central banks primarily treat gold as a structural hold, with 83 percent categorizing it as a “historical legacy asset,” compared to just 33 percent of EMDE respondents.

Changes to vaulting, purchase strategies

Central banks are also modifying where they store their physical gold and how they finance new acquisitions. The Bank of England remains the dominant vaulting location at 57 percent, followed by domestic storage at 49 percent.

However, the data points toward geographic diversification. Over the past 12 months, 9 percent of respondents increased their domestic storage allocations while 10 percent diversified their overseas vaulting locations.

The survey shows this streak is projected to continue, with 7 percent planning to boost domestic storage and 9 percent planning to seek new foreign jurisdictions over the next year.

Last year, countries like Germany and Italy faced political pressure to repatriate more than a third of their gold reserves worth an estimated US$245 billion from the Federal Reserve Bank of New York.

European officials and organizations, including the Taxpayers Association of Europe (TAE), had heavily pushed to bring sovereign bullion home to ensure absolute control amid fears of political interference with the Fed's autonomy.

To fund future gold purchases, 50 percent of surveyed central banks intend to utilize local currency domestic purchase programs, which are already established in 53 percent of EMDE jurisdictions. Another 38 percent of respondents state they do so by liquidating existing reserve assets.

Moving forward, the WGC expects central bank demand for bullion to remain resilient as geopolitical risk continue to weigh on global markets.