Central banks worldwide have been buying record amounts of gold since the beginning of 2022. The pace and regularity with which these state-owned financial institutions are stocking up on 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 highs and show no sign of abating. This upward trend has been driven by the accumulation of gold by central banks, which have been buying record amounts of the golden metal and continue to hoard it at a frenetic pace.

According to data from the World Gold Council (WGC), in Q1, central banks added 290 tonnes to their reserves, up 1% year-on-year and 69% more than the quarterly average of the past five years. This is the strongest start to the year in the WGC’s historical series, which dates back to 2000.

From net sellers to net buyers

After dismantling the gold standard during the 1970s, according to which their convertibility sustains the value of currencies to gold, the precious metal lost much of the interest of central banks and its place at the centre of the international monetary system.

Fifty years later, the global financial crisis of 2008 signalled a paradigm shift in these state-owned financial institutions’ perception of gold as a safe-haven asset. 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, worried central banks that held large amounts of dollar reserves and treasury bonds.

In this context, diversifying their reserves by buying gold was a no-brainer, making them net buyers since 2009 after decades of being sellers. Yet, this resurgence in interest in gold accumulation has accelerated significantly in the last three years.

Geopolitical risks in a multipolar world

Gold offers a stable alternative to the expansionary monetary policies that have fuelled the growing distrust of fiat currencies and devalued their price, but it is also a key asset for countries seeking to reduce their dependence on the US dollar through the process of de-dollarisation.

This is a trend that is gaining momentum due to the weaponisation of the dollar and the international monetary system through economic sanctions imposed by the United States on any country that poses a threat to its hegemony. This strategy of de-dollarisation is particularly evident in countries such as Russia and China, which have significantly increased their gold reserves in recent years, especially since the US and its client states in the EU froze more than 300 billion euros in Russian central bank assets.

The rise in gold reserves also reflects changes in the global economic balance of power. As emerging economies gain weight on the international stage, they are looking for ways to consolidate their position and stabilise their currencies in the face of market instability or, as was the case in Russia, where the temporary convertibility of the rouble to gold at a fixed price became a key tool to recover and stabilise the rouble’s value after the fall experienced by sanctions.

The consequences of these geopolitical tensions and monetary policies that fuel runaway 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.

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