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Central banks of advanced economies expect gold’s share of global reserves to rise at the expense of the US dollar, as these institutions look to follow the lead of emerging markets in buying precious metals.
Nearly 60 percent of rich country central banks believe gold’s share of global reserves will rise over the next five years, up from 38 percent of respondents last year, according to an annual survey conducted by the World Gold Council. an initiative of the industry. group.
About 13 percent of advanced economies plan to increase their gold holdings in the coming year, up from about 8 percent last year and the highest level since the survey began. This follows the lead of emerging market central banks, which have been the main buyers of gold since the 2008 global financial crisis.
Meanwhile, a growing share of advanced economies (56 percent, up from 46 percent last year) believe the dollar’s share of global reserves will decline over the next five years. Of emerging market central banks, 64 percent share this view.
Demand for gold, which comes despite a sharp rise in the yellow metal’s price this year, highlights how allocations to the dollar have declined as central banks have sought to diversify their holdings through alternative currencies and assets, especially after the US weaponized its gold. its currency in sanctions against Russia.
“This year we have seen much stronger convergence. More advanced countries say gold will take up a larger share of global reserves and the dollar less,” said Shaokai Fan, global head of central banks at the WGC.
“It wasn’t emerging markets that were devaluing these factors, but advanced markets that were catching up to the way emerging markets think about gold,” he added.
The survey – one of the few insights into the thinking of publicity-shy reserve managers – shows that since the survey began five years ago, a record share of central banks plan to increase their gold reserves to 29 percent of their gold reserves over the next 12 months . respondents. Of respondents from emerging markets, almost 40 percent plan to expand their holdings.
The main reasons central banks cite for holding gold are its long-term value, its performance during a crisis and its role as an effective diversifier.
According to the WGC, central banks added more than 1,000 tons of gold to their reserves in both 2022 and 2023. US sanctions on Russian dollar-denominated assets have sparked a rush among non-Western official financial institutions for the precious metal – whose value is not dependent on a government or bank, unlike fiat currency.
Back-to-back years of record buying, the pace of which has continued this year, have been a driving factor behind gold’s rally to nearly $2,450 a troy ounce last month. It has risen 42 percent since the conflict between Israel and Hamas began in October.
The dollar’s share of global foreign exchange reserves – excluding gold – has plummeted from more than 70 percent in 2000 to about 55 percent last year, erasing the effect of the US dollar’s appreciation, IMF research shows this month. Including gold, the dollar’s share has fallen below half, the WGC says.
Although the Chinese renminbi has made some gains as a reserve currency, the uncertainty hanging over the country’s economy has led to the percentage of central banks expecting the Chinese renminbi to increase its share of global reserves falling from 79 percent last year. year to 59 percent this year. .
This article has been corrected to say that gold prices hit a record high of nearly $2,450 last month, not $1,450 as previously stated