Why countries are stocking up on gold

Central banks around the world have bulked up their reserves of gold, a safe but cumbersome investment that has been revived in popularity by intensifying geopolitical tensions and concerns over inflation. The central banks of Poland, Turkey, India and China have been some of the biggest buyers of gold in the past several years.

This year, the price of gold exceeded $5,000 per troy ounce for the first time in history. One major reason prices have soared — doubling in a year and a half — is the demand from emerging economies.

Central banks have continued to add to their holdings of gold since the conflict began in late February, including those in China, Poland, the Czech Republic and Uzbekistan, according to data from the World Gold Council. In March, China’s central bank bought more gold than it had in more than a year. Guatemala also bought gold in March, for the first time in about six months, the council said.

“Recent market developments, driven by the instability in the Middle East, have reinforced our view that instability has become the defining feature of the global economy,” Adam Glapinski, governor, National Bank of Poland, said in response to written questions. “I would reiterate the importance of diversifying foreign reserves and the role of gold as a strategic asset.”

A quick sale

Gold is seen as a good store of value when inflation rises, and it can usually be sold quickly when a country urgently needs cash. Crucially, it is harder for another country to interfere in a central bank’s stash with sanctions because gold is a physical object and not, like a bond or bank deposit, backed by a currency such as the dollar or euro.

The growing interest in gold began in earnest after Russia’s full-scale invasion of Ukraine in 2022. The United States and Europe responded with sanctions that froze Russia’s reserves overseas. That cut off the Russian central bank from about $300 billion in assets, mostly euros and dollars, and was a major escalation by Western governments, which were now using their currencies as a choke point.

Since then, gold holdings by central banks have increased rapidly. For three years, central banks added more than 1,000 metric tonnes of gold annually to their reserves. (A metric tonne is equal to 2,205 pounds.) That was more than double the pace in 2021, according to the World Gold Council.

The war with Iran has shown how countries can use gold as a buffer against economic stress. Turkey’s central bank has sold or lent more than 120 metric tonnes of gold from its vast reserves since the United States and Israel struck Iran on February 28, according to central bank data.

The sales were designed to help bolster the value of the Turkish lira, which has plummeted amid concerns about inflation and the country’s poor economic outlook. In general, central banks worry about weak currencies, which raise import prices and worsen inflation.

Liquidity

Because gold is, in many ways, effectively off the grid of the modern global financial system, countries can use it to shore up their autonomy.

“Gold is globally liquid, universally recognised, and — crucially — it does not represent anyone else’s liability,” said Glapinski, one of the loudest proponents of central banks’ increasing gold reserves.

In March, the Polish central bank had a stock of 580 metric tonnes of gold, valued at about $85 billion, up from 228 metric tonnes in 2022. “The bank intends to increase its gold holdings to 700 metric tonnes to reflect the relentless rise in economic strength and importance of our country over the past two decades,” he added.

Three years ago, the Czech National Bank decided to increase its gold reserves from an “almost negligible” amount of less than 10 metric tonnes, said Jan Kubicek, a board member of the central bank who oversees its reserves. By 2028, the bank aims to increase the amount of gold in its international reserves to 100 metric tonnes.

“After the global financial crisis nearly 20 years ago, the perception of gold among many central bankers started to change,” Kubicek said. “Central banks have been net buyers since 2010, according to the World Gold Council. We joined this group after the breakout of the Ukrainian war.”

The price of gold has been more volatile than usual lately, in part because of the extraordinary run-up in price, which drew in a swarm of individual investors prone to rapid buying and selling. And though central banks have pulled back their purchases somewhat over the past year, analysts say they expect central banks to remain consistent buyers.

At the Czech central bank, for example, purchases follow a steady rhythm, rather than being entirely responsive to volatility in the market.

A survey of central banks conducted in the first three months of the year found that more than one-third planned to increase their gold holdings in the next year, and the rest said they would maintain their current allocations. The banks’ managers, surveyed by Central Banking Publications and HSBC, estimated that gold would reach a median of $5,250 per troy ounce by the end of the year, up from about $4,546 now.

“Whatever the conditions,” said Krishan Gopaul, a senior analyst at the World Gold Council, “central banks have become a real pillar of demand in the gold market.”

Where it’s stored

Two of the largest gold warehouses are in Federal Reserve Bank, New York and Bank of England, London. The two cities are the world’s largest trading hubs for gold, and they have a history of secure and reliable storage stretching back more than a century. There are more than 500,000 gold bars at the New York Fed, which was the largest single store of monetary gold as of the end of 2024.

However, Hong Kong is trying to emerge as a challenger offering an alternative away from Western countries.

Since 1970, central banks in many advanced European economies and the US have sold more gold than they bought. Still, at the end of 2024, those central banks accounted for 57% of global gold reserves, according to an analysis by the Brookings Institution, a think tank.

The US has the largest reserves, followed by Germany, Italy and France. The largest buyers today are central banks in emerging economies.

However, President Donald Trump’s frequent attacks on Europe have left some officials asking whether their gold would be better stored at home.

The calls for gold repatriation in Europe have been isolated, coming mostly from some lawmakers and economists in Germany and Italy.

Germany repatriated some of its gold about a decade ago, but since then it has kept about half of its gold at home, a third in New York and the rest in London. Around 44% of Italy’s gold is stored domestically, about the same amount is stored in New York and the rest is kept in Britain and Switzerland. The central banks in Germany and Italy have said they have no plans to bring their gold home.

One reason to keep gold in New York and London: both central banks have impeccable records on security. The gold has never been stolen from these vaults, not even when being moved. During World War II, the gold in London was secretly moved to Canada for safekeeping for several years.

More than 60 central banks store gold at the Bank of England, Andrew Bailey, the central bank’s governor, said recently in an interview on Sky News. It holds about 430,000 gold bars across nine vaults, meaning the central banks can buy and sell to one another without their gold’s leaving the bank’s possession.

The Czech Republic’s central bank has decided to keep almost all its gold in London, where it can lend it to other central banks and generate returns.

The question of storage is most pressing for countries increasing their holdings. India has added to its overall gold reserves while reducing how much it stores at the Bank of England. Turkey, increasing the gold it held domestically, moved all of its gold out of the New York Fed in 2017, and then out of Switzerland a year later. It had also reduced holdings at the Bank of England but later rebuilt much of those reserves in London, where they can be more easily used for transactions.

For perhaps obvious reasons, many central banks keep the locations of their gold a tight secret. China’s central bank has been one of the largest purchasers in recent years, buying for 17 consecutive months, but there are scant details about the location of its reserves. The Brazilian central bank increased its gold reserves late last year for the first time in four years, but it did not disclose where it stored them.

The New York Times