Gold Fever: Central Banks Hoarding Gold like Never Before
Central authorities strengthening their reserves with gold assets.
In just two swift years, the price of gold has skyrocketed, mostly due to even the mightiest banks ramping up their gold stockpiles, with no sign of stopping.
Since the Russia-Ukraine debacle, central banks have been beefing up their gold hoards, and there's not a single slowdown in sight. According to the Gold Council, central banks worldwide predict they or other central banks will be loading up on gold this very year.
The industry bigwigs polled central banks for their predictions. An astonishing 95% of them foresee a significant expansion of global central bank gold reserves within the next 12 months, the highest such prediction since the annual survey began in 2018.
Unsettling geopolitics, sanction threats, and worries about the strength of the U.S. dollar have caused central banks to snatch up gold as of late. Gold has recently leapfrogged the euro to become the world's second most essential reserve currency, trailing the U.S. dollar. This year alone, the gold price has climbed by a whopping 30%, and it's doubled in the past two years.
Central bank purchases are a key factor in this price surge. In 2024, they heaped an impressive 1,000 tonnes of gold into their vaults, marking the third consecutive year of record-breaking gold acquisitions, pushing global holdings to an impressive 36,000 tonnes - a near-record high last seen in 1965. The survey reveals that the primary motivations for these purchases are shielding against inflation and the absence of default risk, unlike government bonds.
Dump the Dollar, Stockpile Gold
For several central banks, becoming less reliant on the dollar is a top priority. Post-Ukraine invasion, the U.S. froze Russian dollar assets and basically banished the country from the international payment system. This move prompted emerging market central banks to speed up their dollar divorce.
Against this backdrop and Trump's questionable policies, some central banks are mulling over shifting parts of their gold reserves to their home countries. New York and London have been the go-to spots for these gold stash-holes, being the world's most influential trading hotspots for precious metal. In a pinch, central banks can trade their gold in these spots for an international reserve currency. According to the Gold Council, the Indian central bank snatched 100 tonnes of gold from London last year, with the Nigerian central bank bringing gold back home.
Bundesbank's Gold Reserves in New York
German calls to haul their gold from New York have amplified since Trump took office. The Bundesbank holds about 37% of its grand total, around 3,352 tonnes, in the bulletproof vaults of the New York Fed. Most of it, 51%, resides in Frankfurt, with the remaining 12% held by the Bank of England in London.
The Bundesbank remains unfazed. Upon request, it declared that the New York Fed remains a vital partner for their gold reserves storage needs. "We have no doubt that we are dealing with a trustworthy and reliable partner in the New York Fed for safeguarding our gold reserves," the German central bank explained. Any suggestion of withdrawing gold from New York could be seen as a lack of trust in the Federal Reserve and its independence, so it's politically delicate terrain.
Bundesbank President Joachim Nagel was quizzed during the annual press conference in February about his feelings concerning part of Germany's gold reserves being housed in New York. "Shouldn't you worry that Elon Musk might show up there with his interns and demand NATO payments?" a reporter asked. "Of course, I've followed this discussion," Nagel replied. "It doesn't keep me up at night. I trust my pals at the American central bank implicitly." Bundesbank Vice President Sabine Mauderer pointed out at the press conference that the Bundesbank routinely inspects its New York holdings: "So, there's no need to fret."
- In light of the global surge in gold prices and the increasing gold hoards by central banks, the Community policy and Employment policy of central banks might need to address the implications of these rapid changes on the economy and monetary policies.
- With central banks worldwide continuing to amass gold as a means of financial security, the Employment policy should consider the potential job creation and economic growth opportunities in the mining, refining, and storage sectors related to gold finance.
