Over the past few years, central banks have been quietly buying up significant quantities of gold.

As the trend has accelerated, official agencies now hold the highest quantity of gold since 1975 – more than 36,000 tonnes of the precious metal.

Central bank buying of gold picked up after Russia’s invasion of Ukraine in 2022. The World Gold Council says central banks have bought an average of 1,000 tonnes a year over the past four years – double the average of the previous decade. It’s one factor behind the surge in the gold price last year.

The council also noted a record 45% of central banks surveyed expect to increase their holdings over the next year.

So, what’s behind this increased desire to hold physical bullion?

Why do central banks hold reserve assets?

Central banks hold a variety of assets as “reserves” or savings. They can use these assets to help intervene in financial markets to support their currency, or in times of market stress.

Reserves can help absorb pressures during currency crises (such as when the Australian dollar plunged to a record low of 47.75 US cents in April 2001) or when borrowing from overseas is difficult or too expensive.

These reserve assets are held in foreign currencies and typically include government debt such as US Treasuries, deposits, banknotes and precious metals such as gold.

What’s........

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