Central banks globally are increasing gold holdings as geopolitical tensions drive a strategic shift in reserve management, a new survey by the Official Monetary and Financial Institutions Forum (OMFIF) reveals. The survey found that a net 30% of central banks plan to increase gold allocations over the next one to two years, while 82% now hold physical gold, up from 71% last year. The motivation is increasingly strategic: 51% of respondents cited protection against geopolitical risk, up 11% from 2024.
Strategic Shift from Financial to Geopolitical Hedge
The survey underscores the evolving role of gold in central bank portfolios. According to OMFIF, "The motivation behind gold purchases is increasingly strategic rather than purely financial." The following table summarises key findings:
| Metric | Value |
|---|---|
| Net central banks planning to increase gold allocations (1-2 years) | 30% |
| Central banks currently holding physical gold | 82% (up from 71% last year) |
| Citing geopolitical risk as motivation | 51% (up 11% from 2024) |
| Expect gold price $5,000-$6,000/oz by June 2027 | 61% |
| Finding current prices high enough to discourage purchases | 28% |
Price Outlook and Market Pressures
Despite the bullish sentiment from central banks, gold prices have weakened recently. According to Reuters, spot gold slipped 0.2% to $4,008.94 per ounce on Tuesday, touching its lowest level since November and 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. Markets currently assign about a 65% probability of a rate hike in September, Reuters reported.
Marex analyst Edward Meir commented, "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."
Diversification Away from the Dollar
The OMFIF survey also highlighted a gradual shift away from the US dollar in reserve portfolios, particularly among emerging market central banks. This year, 29% of respondents plan to increase euro holdings in the long term, up from 22% last year. The euro and China's renminbi emerged as the preferred alternatives. However, the survey noted that neither currency fully addresses reserve managers' requirements: the euro lacks a single, deep safe asset market, while the renminbi remains constrained by market structure and geopolitical concerns.
AI Adoption and Persistent Uncertainty
The survey found growing adoption of artificial intelligence across central banks: 89% of central banks in developed economies have implemented some form of AI, compared with 44% in emerging markets. Reserve managers are increasingly adapting to 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.
Investors continue to watch upcoming US employment data this week for further clues on the Fed's interest rate path.
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