In a striking shift in global financial strategy, central banks worldwide are accelerating their accumulation of gold, driven by mounting geopolitical tensions and a waning confidence in the US dollar. A new survey by asset manager Invesco reveals that approximately half of the 50 central banks polled intend to increase their gold allocations, a move that is reshaping international reserves.
The Great Repatriation and the Flight to Safety
The trend is not just about buying more bullion; it's also about bringing it home. Two-thirds of the surveyed banks plan to relocate gold stockpiles held overseas back to domestic vaults. This scramble for physical security was vividly illustrated by Serbia's central bank governor, Jorgovanka Tabaković, who recounted an incident where millions in gold bars were temporarily left on a Swiss airport runway because air freight prioritises perishables over precious metal.
This rush is fuelling record prices. Gold soared to $4,643 an ounce this week, with analysts predicting it could break $5,000 this year. The share of gold in central bank reserves has doubled over the past decade to more than a quarter, its highest level in almost 30 years.
Why the Dollar is Losing Its Lustre
For much of the past century, the US dollar has been the undisputed anchor of the global monetary system. However, experts point to a crisis of credibility. Raphaël Gallardo, chief economist at Carmignac, states the situation bluntly: "The dollar is losing credibility as the nominal anchor of the global monetary system." He cites eroding trust in the Federal Reserve's independence, fragile US public finances, and the "weaponisation" of reserves—exemplified by the freezing of Russian assets after the invasion of Ukraine—as key reasons.
The dollar's share of global reserves has slipped from about 66% a decade ago to roughly 57%. Yet, with no clear fiat currency alternative like the euro or yuan offering comparable scale and stability, institutions are turning to the oldest safe haven: gold. In June last year, gold overtook the euro to become the world's second-most important reserve asset.
Vaults, Repatriation, and Geopolitical Fault Lines
The logistical and political complexities of this gold rush are significant. The Bank of England, a key global hub holding about 400,000 bars for 70 institutions, finds itself at the centre. Cases like Venezuela, which cannot access $2bn in gold stored there due to diplomatic non-recognition, highlight the risks of holding reserves abroad.
Nations from Germany and Poland to India, Hungary, and Turkey have pursued repatriation. The World Gold Council notes that central bank purchases rose by 10% in the year to September, led by Poland, Kazakhstan, Azerbaijan, and China. Beijing's buying spree has amassed over 2,000 tonnes, while the US is still thought to hold the world's largest stockpile at over 8,000 tonnes, though its Fort Knox vault hasn't had an official audit since 1953.
Rod Ringrow, Invesco's head of official institutions, summarises the sentiment: "Gold has always been the ultimate safe haven... It's a form of protection and a backstop if traditional fiat currencies fail." While some speculate about cryptocurrencies' future role, their volatility and nascent nature mean gold's reign as the barbarous relic of choice is, for now, firmly reinstated.
