Central banks around the world are ramping up their gold reserves, with the latest data showing that they now hold 12.1% of all global gold reserves, the highest level since the 1990s. This surge in gold holdings has more than doubled over the past decade, indicating a significant shift in the financial landscape.
Leading the charge in this gold-buying frenzy are countries like China, India, Turkey, and Poland. China, in particular, has hit a new high in 2024, reaching 2,264 tonnes of gold, which now accounts for 5.4% of its foreign reserves.
The spike in gold prices this year has been remarkable, with the precious metal hitting record highs and climbing 35 times to date, surging 33%. This surge in gold returns has outpaced the broader stock market by 10% and even beat the Nasdaq 100. Since the latest bull market began in October 2022, gold returns have soared by 67%, surpassing the S&P 500’s 63%.
The World Gold Council reports that central banks purchased 483 tons of gold in the first half of the year, driven by a push to diversify away from the U.S. dollar, which has long dominated global trade and finance. This trend has accelerated post-2022, following Russia’s invasion of Ukraine and subsequent economic sanctions imposed by the U.S.
Economist Mohamed El-Erian notes that the rise in gold holdings reflects a shift in behavior among countries like China and other “middle power” nations, as they seek to reduce their dependence on the U.S. dollar and explore alternative payment systems. The appeal of gold as a safe haven asset has also grown stronger amid rising geopolitical tensions and concerns about U.S. debt.
Political developments in the U.S., including the “Trump trade,” are also impacting gold demand, with investors turning to the precious metal as a hedge against fiscal profligacy, financial repression, and attacks on Fed independence. Interest rates play a crucial role in gold’s appeal, with falling rates historically boosting gold prices.
Overall, the surge in central bank gold reserves reflects a broader trend towards de-dollarization and strategic diversification, as countries seek to safeguard their wealth in uncertain times. Gold’s stability and appeal as a safe haven asset continue to drive demand among investors and central banks alike.
