Since the beginning of 2022, central banks around the world have purchased record amounts of gold. The pace and regularity with which these state financial institutions are stockpiling gold is unprecedented. What is behind this new gold rush?
It is no secret that gold is a strategic safe-haven asset that plays a key role in diversifying investment portfolios. Throughout history, it has established itself as the ultimate store of value precisely because it maintains or increases its price during periods of economic uncertainty.
That said, in recent years, especially since 2022, the price and demand for gold have reached record levels and show no signs of slowing down. This upward trend has been driven by the accumulation of gold by central banks, which have purchased record quantities of the yellow metal and continue to accumulate it at a frantic pace.
According to data from the World Gold Council (WGC), in the first quarter, central banks added 290 tonnes to their reserves, representing a 1% increase year-on-year and 69% more than the quarterly average of the last five years. This is the strongest start to the year in the WGC historical series, which dates back to 2000.
From net sellers to net buyers
Following the dismantling of the gold standard during the 1970s, under which their convertibility supported the value of currencies in gold, the precious metal lost much of the interest of central banks and its place at the center of the international monetary system.
Fifty years later, the 2008 global financial crisis marked a paradigm shift in the perception of gold as a safe-haven asset by these state financial institutions. The emergence of quantitative easing (QE), which aims to increase the money supply by setting lower interest rates—essentially a monetary policy of printing more money—concerned central banks that held large amounts of reserves in dollars and treasury bills.
In this context, diversifying their reserves by purchasing gold was a no-brainer, making them net buyers since 2009 after decades of selling. However, this resurgence of interest in gold accumulation has accelerated significantly over the last three years.
Geopolitical risks in a multipolar world
Gold offers a stable alternative to expansionary monetary policies that have fueled growing distrust in fiat currencies and devalued their price, but it is also a key resource for countries seeking to reduce their dependence on the US dollar through the process of de-dollarization.
This is a trend gaining momentum due to the weaponization of the dollar and the international monetary system through economic sanctions imposed by the United States on any country that represents a threat to its hegemony. This de-dollarization strategy is particularly evident in countries like Russia and China, which have significantly increased their gold reserves in recent years, especially since the United States and its client states in the EU froze more than 300 billion euros of Russian central bank assets.
The increase in gold reserves also reflects changes in the global economic balance. As emerging economies gain weight on the international stage, they are looking for ways to consolidate their position and stabilize their currencies in the face of market instability or, as in the case of Russia, where the temporary convertibility of the ruble into gold at a fixed price became a key tool to recover and stabilize the value of the ruble after the fall suffered from sanctions.
The consequences of these geopolitical tensions and monetary policies that fuel out-of-control debt and devalue currencies can be disastrous for the global economy. It is therefore not surprising that central banks and many investors look to gold as the only safe alternative to protect their capital.