Central banks across the world are increasing their gold holdings as geopolitical tensions reshape reserve management strategies, with many also planning to reduce their exposure to the US dollar over the coming decade, according to a new survey by the Official Monetary and Financial Institutions Forum (OMFIF).The survey found that a net 30 per cent of central banks plan to increase their gold allocations over the next one to two years, while 82 per cent now hold physical gold, up from 71 per cent last year.The report said the motivation behind buying gold is becoming increasingly strategic.“The motivation behind gold purchases is increasingly strategic rather than purely financial. Protection against geopolitical risk is cited by 51% of respondents, up 11% from 2024,” the survey said.
Most central banks expect gold above $5,000 an ounce
According to the survey, 61 per cent of central banks expect gold prices to trade between $5,000 and $6,000 per ounce by June 2027.However, 28 per cent of respondents said current gold prices are already high enough to discourage additional purchases.The findings come even as gold prices have weakened in recent weeks.According to Reuters, spot gold slipped 0.2 per cent to $4,008.94 per ounce on Tuesday after touching its lowest level since November and was on course for its steepest quarterly decline in 13 years.The decline has been driven by expectations that persistent inflation could prompt the US Federal Reserve to keep interest rates elevated or raise them further.Reuters quoted Marex analyst Edward Meir as saying, “The markets are a little uneasy about how stable the MOU is and there’s pressure on gold because people are not seeing much light at the end of the tunnel.”
Central banks look beyond the US dollar
The OMFIF survey also highlighted a gradual shift away from the US dollar in reserve portfolios, particularly among emerging market central banks.The euro and China’s renminbi emerged as the preferred alternatives to the dollar, while some reserve managers are also considering emerging market currencies.“This year, 29% of respondents plan to increase euro holdings in the long term, up from 22% last year,” the report said.However, the survey noted that neither currency fully addresses reserve managers’ requirements.“Neither the euro nor the renminbi fully solves reserve managers’ problem: the former lacks a single, deep safe asset market, while the latter remains constrained by market structure and geopolitical concerns,” the report said.
AI adoption accelerates among central banks
The survey found growing adoption of artificial intelligence across central banks to improve efficiency and decision-making.According to the report, 89 per cent of central banks in developed economies have implemented some form of AI, compared with 44 per cent in emerging markets.The report added that reserve managers are increasingly adapting to a world of persistent uncertainty rather than waiting for conditions to stabilise.“The old assumption that public investors can wait for the environment to normalise looks increasingly unrealistic,” the survey said.Meanwhile, investors continue to monitor upcoming US employment data this week for further clues on the Federal Reserve’s interest rate outlook, with Reuters reporting that markets currently assign about a 65 per cent probability of a rate hike in September.
