Central banks, which manage trillions of dollars in foreign exchange reserves, have started hoarding gold as geopolitical tensions, including the war in Ukraine, have forced them to review their investment strategies, the Financial Times reported, as quoted by Agerpres on Sunday.

The annual February-March 2023 survey of officials from 83 central banks, which together manage about $7 trillion in foreign exchange reserves, found that more than two-thirds of respondents believe their peers will increase their gold reserves in 2023.

Gold bullion tends to be more attractive during periods of volatility, and demand for gold has exploded over the past year. According to the World Gold Council, the amount of gold purchased by central banks in 2022 increased by 152% compared to 2021 to 1,136 tons.

According to the HSBC Reserve Management Trends Survey, published by Central Banking Publications, the majority of central bank officials surveyed cited geopolitical risks as the second most important concern after high inflation.

More than 40% of respondents cite geopolitical risk as one of the top risk factors, compared to just 23% in last year’s survey. In addition, about a third of those surveyed have changed or plan to change the assets they buy due to tensions such as the Russian invasion of Ukraine and worsening relations between the US and China.

Many purchases of gold last year were made by central banks of countries that did not join the West

The author of the survey, Victor Mendez-Barreira, says that Russia’s invasion of Ukraine has created “a factor that conservation managers should consider.”

The invasion of Ukraine prompted Western countries to impose broad financial sanctions on Moscow, including freezing about $300 billion of the Russian Central Bank’s assets abroad. But the gold reserves of the Central Bank of the Russian Federation were not affected by the sanctions, as they were kept in Russia.

Data from the World Gold Council show that many of the gold purchases last year were made by central banks of countries that are not Western allies. For example, China’s central bank bought 62 tons of gold in November and December 2022, pushing its gold reserves past the 2,000-ton mark for the first time in history. Turkey’s official gold reserves also increased by 148 tonnes to 542 tonnes in 2022. Middle Eastern and Central Asian countries have also been “active buyers” of gold over the past year.

John Reed, chief analyst at the World Gold Council, said the sanctions against Russia’s central bank “have prompted many central banks outside the bloc to reconsider where they should hold their international reserves. Countries have recognized the fact that the gold that Russia has, because it’s out of anyone’s control, is useful in situations where you may no longer have access to other reserves.”

The price of gold is now close to an all-time high

While Russian gold was kept at home, many central banks kept their gold reserves abroad, particularly at the Bank of England or the Federal Reserve in New York, reflecting the status of London and New York as the largest markets for gold trading.

In addition, gold is also seen as an effective hedge against high inflation, which is a top concern for more than 70% of central bank officials surveyed. The price of gold is now near an all-time high after a surge in inflation in 2022.

In addition, most respondents expect the Chinese currency to acquire a larger share of international reserves by the end of this decade.

Figures from the International Monetary Fund show that the dollar was responsible for 58% of total central bank reserves in the fourth quarter of last year, while the euro was responsible for just over 20% and the Chinese yuan for just 2.7%.