Taylor Scott
Central banks are increasingly buying gold from local mines as prices surge. In May 2025, central banks added a net 20t to global gold reserves, with the National Bank of Kazakhstan leading the buying of 7t, followed by Turkey and Poland, each with 6t net purchases. The primary role of gold for central banks is to diversify their reserves. Banks are responsible for their nations' currencies, but these can fluctuate in value depending on the perceived strength or weakness of the economy. Gold, on the other hand, is a finite physical commodity whose supply cannot be easily increased, making it a natural hedge against inflation.
| Characteristics | Values |
|---|---|
| Reason for buying gold | To diversify reserves from dollar-denominated assets into bullion |
| Gold as a hedge against inflation | Gold is a finite physical commodity whose supply can't be easily increased |
| Central banks buying gold | Emerging economies such as Russia, China, Turkey, India, Poland, and Hungary |
| Central banks selling gold | Monetary Authority of Singapore, Central Bank of the Republic of Uzbekistan, Deutsche Bundesbank |
| Number of central banks buying gold | 73 central banks |
| Anticipated increase in gold holdings | 43% of central banks |
| Anticipated increase in gold as a share of total reserves | 76% of central banks |
| Anticipated decline in US dollar reserves | 73% of central banks |
| Annual gold purchases by central banks | Over 1000t of gold annually in the past three years |
| Gold purchases in May 2025 | 20t added to global gold reserves |
Explore related products
What You'll Learn
Central banks are buying gold from local mines
Central banks are increasingly buying gold from local mines as prices surge. In the past, central banks would typically buy gold on the international market, but now many are turning to domestic mine production to save money, support local industry, and expand their reserves.
Gold prices have been soaring, scaling fresh highs amid geopolitical uncertainties and waning confidence in other traditional safe havens. Because of gold's soaring prices and its attractiveness as a hedge against geopolitical risks, it is natural that the central banks of producer nations would turn to domestic output. Buying domestic mine output saves on banking and intermediary fees, as well as shipping costs. It also allows central banks to grow their reserves using local currency, meaning they do not have to sacrifice another reserve asset (such as US dollars) to grow their gold reserves.
However, obtaining gold from local mines can come with some additional costs. To serve as a reserve asset, gold must meet London Good Delivery (LGD) purity standards, and countries may need to pay for processing and refining the metal to this standard. Central banks that have domestic LGD refining capacity can nullify these additional costs. For example, the Philippines' central bank is a certified LGD refiner, and Kazakhstan has two refiners accredited by the London Bullion Market Association.
Another benefit of buying gold from local mines is that it can help to formalize and clean up the supply chain. Much of the gold being bought domestically comes from artisanal and small-scale gold mining (ASGM), which has been linked with poor labor practices, environmental damage, and illegal smuggling. However, central banks, with their institutional credibility and financial weight, are in a good position to improve traceability and accountability in the supply chain.
POD: Banking's Secret Weapon for Secure Transactions
You may want to see also
Explore related products
Gold is a hedge against inflation
Central banks are increasingly buying gold from local mines as prices surge. In May 2025, central banks added a net 20t to global gold reserves, with the National Bank of Kazakhstan leading the buying. This is part of a broader trend: over the past three years, central banks have purchased more than 1000t of gold annually, compared to just 400t-500t per year in the prior decade.
Gold is often described as a hedge against inflation. It is popular among investors because it can be used as a hedge against currency devaluation, inflation, or deflation. It also provides a safe haven during times of economic uncertainty. For example, gold prices rose 29% in 2025, reaching a record high of $3,500 per troy ounce in April, due to geopolitical tensions and economic uncertainty.
However, the relationship between gold and inflation is complex and unstable. While gold has been shown to hedge inflation quite well in certain periods, there is no evidence that it will consistently do so. For example, gold does not appear to hedge the price pressure caused by underlying inflation. Additionally, changes in headline PCE inflation are not meaningfully correlated with changes in the spot price of gold.
Gold's effectiveness as a hedge against inflation depends on the specific circumstances. For instance, gold typically only guards against very high inflation and large inflation surprises caused by losses in central bank credibility and geopolitical supply shocks.
Compared to gold, government bonds and Treasury Inflation-Protected Securities (TIPS) are considered more secure investments during inflationary periods. TIPS provide built-in inflation protection, although they usually pay lower interest rates than other securities. Certain exchange-traded funds (ETFs) that invest in gold and hold Treasuries may be ideal for most investors.
Notary Services: Are They Available at All Banks?
You may want to see also
Explore related products
Gold is a safe-haven asset
Gold has long been regarded as a safe-haven asset, offering stability and protection against economic uncertainty. This perception persists in 2025, with gold continuing to attract investors worldwide amidst turbulent times.
Gold's enduring appeal as a safe haven lies in its historical performance during market volatility and its ability to maintain value over centuries. It has served as a store of wealth and an inflation hedge, currency devaluation hedge, and a safeguard against political instability. Gold's physical indestructibility and universal desirability further reinforce its status as a safe-haven asset.
In the context of the current economic landscape, gold's appeal is heightened by factors such as rising geopolitical tensions, inflation concerns, and unpredictable monetary policies. Investors seek to diversify their portfolios and hedge against risks, making gold a cornerstone of their investment strategies. This trend is evident in the actions of central banks, which are increasingly buying gold, including from local mines, to bolster their reserves.
However, some experts argue that gold may not fulfil the criteria of a safe-haven asset, which typically entails low volatility and predictable returns. Gold's performance as an investment class can be more volatile than equities, and its returns may not always meet expectations when compared to riskier assets. Nonetheless, gold's overall resilience and historical performance continue to make it a sought-after asset during uncertain times.
As global economic conditions evolve, gold's role as a safe haven may fluctuate. While it currently enjoys prominence, investors must carefully consider their investment strategies and diversify their portfolios to manage risk effectively. Gold, when invested in thoughtfully and in moderation, can be a valuable component of a well-rounded investment approach.
QuickBooks Bank Reconciliation: A Step-by-Step Guide
You may want to see also
Explore related products
Central banks are buying less US dollar reserves
Central banks are increasingly buying gold from local mines as prices surge. In 2025, purchases from central banks are expected to fall by 8% from last year's record high of 1,086 tons. However, central banks are still on track to buy 1,000 metric tons of gold in 2025, marking their fourth year of massive purchases as they diversify reserves from dollar-denominated assets into bullion.
This shift towards gold is particularly evident in emerging markets and developing economies, where central banks seek to diversify the currency composition of their reserves. China, Russia, and Türkiye have been the largest buyers in the last decade, with the share of gold in FX reserves in emerging markets doubling over the same period.
The decline in the US dollar's share of global reserves has been accompanied by a rise in non-traditional reserve currencies, such as the Australian dollar, Canadian dollar, Chinese renminbi, and Singaporean dollar. These currencies offer diversification and relatively attractive yields, contributing to the gradual decline in the dominance of the US dollar.
While the US dollar remains the dominant international reserve currency, its hegemony has been questioned due to geopolitical and geostrategic shifts. The share of US dollar reserves held by central banks fell to 59% during the fourth quarter of 2020, its lowest level in 25 years. This indicates that central banks have been gradually shifting away from the dollar, contributing to the reduced reliance on the US currency in global reserves.
The West Bank: Palestine's Territory?
You may want to see also
Explore related products
Gold purchases by emerging economies
Central banks are increasingly buying gold from local mines as prices surge. Countries such as the Philippines and Ecuador have been doing this for years, but more central banks with access to domestic gold mines have started or are considering direct local purchases. For example, in April 2025, the Ghana Gold Board, the state agency that manages gold purchases for the Bank of Ghana, secured agreements with several mining companies to buy 20% of their gold output. Similarly, Tanzania's mining authority mandated that gold exporters set aside at least 20% of their output for the central bank.
Central banks are taking advantage of the higher prices to buy gold at a slight discount to the international price. Gold is a highly liquid asset, and its scarcity preserves its value as inflation erodes dollar- and euro-denominated assets. Central banks can also use their massive buying power to formalize and clean up the artisanal and small-scale gold mining supply chain, which has been linked with poor labor practices, environmental damage, and illegal smuggling.
However, gold's nearly fixed supply means there is no limit on its price, and it is a low-risk asset with average real returns comparable to very short-term debt. Gold is also advantageous for sanctions evasion due to its anonymity, low traceability, and alternatives to Western financial centers. For example, Russia embarked on a major gold purchase program after US and EU sanctions for its annexation of Crimea in 2014. China has also quietly expanded its gold stockpile by over 70% since 2009, signalling an accelerated purchase program that persists today.
The Future of Truist Bank: Will It Survive?
You may want to see also
Frequently asked questions
Central banks are buying gold.
Gold is a finite physical commodity whose supply can't easily be increased. It is a natural hedge against inflation and a source of trust in a country. Central banks are responsible for their nations' currencies, which can be subject to swings in value depending on the perceived strength or weakness of the economy.
Central banks in emerging economies such as Russia, China, Turkey, and India have been buying gold. More recently, European Union members Poland and Hungary have also been making regular additions to their holdings. In 2025, the National Bank of Kazakhstan, Turkey, and Poland were among the top buyers.
Central banks traditionally acquire gold through the global over-the-counter market, typically centered in London. However, there is a growing trend of central banks buying gold directly from domestic artisanal and small-scale gold mines.
Central banks have purchased more than 1,000 tons of gold annually in the past three years, compared to just 400-500 tons per year in the previous decade. In 2025, purchases from central banks are expected to fall by 8% from the previous year's record high of 1,086 tons.
