Economic sanctions accelerate gold repatriation

An Invesco survey of central banks and sovereign wealth funds published on Monday confirms that more and more countries are repatriating their gold reserves as a hedge against Western economic sanctions.

The trend of hoarding gold in the face of economic and geopolitical uncertainty is not new. Over the past year, there have been repeated reports of record gold purchases by central banks seeking to diversify their reserves to protect against financial market volatility, runaway inflation and geopolitical tensions caused by the conflict in Ukraine.

According to data released last April by the World Gold Council (WGC), central banks had net purchases of 125 tonnes of gold at the end of February this year. This is a figure that, in year-on-year terms, has not been seen since 2010 and continues the upward trend experienced during 2022, ending the year with a record 1,136 tonnes of gold sold.

The downturn in financial markets over the past year and fears of a possible major recession generated widespread losses, but the freezing of almost half of Russia’s $640 billion gold and foreign exchange reserves by the West due to the conflict in Ukraine appears to have been key in triggering a policy shift in the investment strategies of government actors, accelerating the repatriation of gold reserves by central banks.

Our gold in our country

This is the conclusion of a survey conducted by Invesco, a global asset management firm, to 85 sovereign wealth funds and 57 central banks. The survey shows that almost 60% of the entities consulted are concerned about the precedent of sanctions against Russia and consider that these events have made gold a more attractive asset, while 68% hold reserves in their coffers compared to 50% in 2020.

A central bank representative quoted anonymously said: “We did have it (gold) held in London… but now we’ve transferred it back to own country to hold as a safe haven asset and to keep it safe.” Robert Ringrow, head of official institutions at Invesco who oversaw the report, said that this is the mantra that has been seen over the past year: “If it’s my gold then I want it in my country.”

The economic sanctions that often follow geopolitical tensions are also the main cause of increasing de-dollarisation. Despite the fact that most central banks and institutions surveyed in the study still see no real alternative to the dollar as the world’s reserve currency, it is no coincidence that while the US dollar’s market share has fallen to 58.4% at the end of the fourth quarter of this year, demand for gold is reaching record highs.

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