Heightened geopolitical risks are prompting central banks worldwide to increase their gold reserves as a strategic hedge, according to a public investor survey by the Official Monetary and Financial Institutions Forum (OMFIF). A net 30% of central banks plan to raise their gold allocation over the next one to two years, the report found.
Gold Holdings and Price Expectations
The survey revealed that 82% of central banks held physical gold in 2026, a significant increase from 71% the previous year. Looking ahead, 61% of central banks expect gold prices to settle between USD 5,000 and USD 6,000 per ounce by June 2027. However, 28% indicated that current prices are discouraging enough to prevent further purchases.
Shift from Financial to Strategic Motivations
According to the report, the motivation behind gold purchases is increasingly strategic rather than purely financial. Protection against geopolitical risk was cited by 51% of respondents, up 11% from 2024. This shift underscores the growing importance of gold as a safe-haven asset amid global uncertainties.
Reduction in Dollar Allocations
The survey highlighted a notable trend among central bankers, with more planning to cut their dollar allocations over the next decade. This shift is more pronounced in emerging markets. The euro and renminbi are the top alternatives to the dollar among central banks, while emerging market currencies are also gaining attention. Specifically, 29% of respondents plan to increase euro holdings in the long term, up from 22% last year.
Challenges for Alternative Currencies
However, the report pointed out that neither the euro nor the renminbi fully solves reserve managers' problems. The euro lacks a single, deep safe asset market, while the renminbi remains constrained by market structure and geopolitical concerns.
AI Adoption in Central Banks
The adoption of artificial intelligence (AI) among central banks to improve efficiency and decision-making is on the rise. The survey found that 89% of developed economy central banks report some form of AI implementation, compared with 44% of emerging market peers.
Volatility Management
The report also noted a shift in how central banks view volatility, seeing it as something that needs better management rather than just a wait-and-watch approach. The old assumption that public investors can wait for the environment to normalise looks increasingly unrealistic, the report said.
