Central banks boosting gold reserves amid geopolitical risks: Survey

An OMFIF survey shows central banks are increasing gold reserves due to geopolitical risks. A significant number plan to reduce dollar holdings, favouring the euro and renminbi, while also increasingly adopting AI for better decision-making.

Heightened geopolitical risks are prompting central banks globally to shore up their gold reserves as a hedge. According to a public investor survey by OMFIF, a net 30 per cent of central banks plan to increase their gold allocation over the next one to two years.

The report said that 82% of central banks held physical gold in 2026, up from 71% last year. Around 61 per cent of central banks expect the gold prices to settle between USD 5,000 and USD 6,000 per ounce by June 2027, while 28 per cent say that current prices are discouraging enough to make further purchases.

"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," according to the report.

Shift Away from US Dollar

The survey, carried out by the Official Monetary and Financial Institutions Forum, highlights another important shift among central bankers as more of them plan to cut their dollar allocations over the next decade, and this shift is more pronounced in emerging markets. The euro and renminbi are the top alternatives to the dollar among central banks, the report said, while highlighting that emerging market currencies are also getting attention.

"This year, 29% of respondents plan to increase euro holdings in the long term, up from 22% last year," the survey report stated.

However, the report pointed to the fact that both currencies have some handicaps. "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 on the Rise

The adoption of artificial intelligence (AI) among central banks to improve efficiency and decision-making is on the rise. "89% of developed economy central banks report some form of artificial intelligence implementation, compared with 44% of emerging market peers," the report mentioned.

New Approach to Volatility

The report found that volatility is being seen as something that needs better management rather than just a wait-and-watch approach. "The old assumption that public investors can wait for the environment to normalise looks increasingly unrealistic," the report said. (ANI)

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