The World Gold Council revealed on Tuesday its expectations that central banks will increase their gold holdings this year, amid rising geopolitical risks and a declining dollar value. Shaokai Fan, the global head of the council's global banking division, noted that central banks such as Guatemala, Indonesia, and Malaysia have already begun purchasing gold, either after a long absence or for the first time ever.
Fan added, "We have observed new central banks entering the gold market, a trend that may continue until 2026." He explained that some of these banks prefer to buy gold from small local producers, which helps support the local industry and limits the sales of gold to illicit entities.
Details of the Event
Speaking to Reuters on the sidelines of the Metals Week in Canberra, Fan pointed out that gold prices have seen a significant drop this month, falling by more than $1000 per ounce to around $4340. This decline may be partially attributed to selling related to margin calls. The standard gold price peaked in late January at around $5600.
During the gold sell-off in October, central banks stockpiled large quantities of the precious metal, but it is too early to determine whether this phenomenon will recur with the current price drop. Fan indicated that demand for gold from central banks may decrease, as rising prices could deter new purchases and increase the weight of existing gold holdings relative to total reserves.
Background & Context
The World Gold Council expects that central bank purchases of gold will decline to 850 metric tons this year, compared to 863 tons in 2025, although these figures remain high compared to levels before 2022. According to the council's data, central bank purchases accounted for about 17 percent of total gold demand last year.
These developments come amid increasing concerns in emerging markets, where stocks in Asia have seen a notable decline due to fears of economic repercussions stemming from energy shocks related to the conflict in the Middle East. Despite the MSCI Emerging Asia Index rising by 2 percent, uncertainty continues to affect the market.
Impact & Consequences
Analyses indicate that Asian economies, being net oil importers, remain the most vulnerable to fluctuations, particularly in India, Thailand, and the Philippines. Rising oil prices exert direct pressure on current account balances and increase inflation rates, pushing foreign investors towards traditional safe havens like the dollar and bonds in developed markets.
Asian currencies have also weakened against the strength of the dollar, with the South Korean won dropping by 0.92 percent. The Philippines and Malaysia are also facing varying declines, amid warnings that inflation in the Philippines could exceed 4 percent this year if oil prices remain elevated.
Regional Significance
The Arab region is directly affected by these developments, as many countries rely on oil exports. With rising oil prices, pressures on the economies of these countries may increase, necessitating new strategies to address economic challenges. Additionally, bolstering gold holdings could be an effective means for some Arab countries to maintain the stability of their cash reserves amid global fluctuations.
In conclusion, the trend towards enhancing gold holdings among central banks reflects a growing concern over geopolitical and economic risks, which could significantly impact global markets in the future.