A growing number of countries have begun repatriating their gold reserves as a defense against Western sanctions on Russia, according to a survey of central banks and sovereign wealth funds by Invesco, Reuters and Agerpres reported.

In addition, last year’s turbulence in financial markets caused losses for sovereign fund managers, who are fundamentally reviewing their strategies in the belief that high inflation and geopolitical tensions will persist, according to the results of this survey published on Monday.

More than 85% of the 85 sovereign wealth funds and 57 central banks that participated in the annual Invesco Global Sovereign Asset Management Study now believe that inflation will be higher in the next decade than in the past.

Gold and emerging market bonds are seen as good bets in this context, but the West’s decision last year to freeze nearly half of Russia’s $640 billion in gold and foreign exchange reserves appears to have caused a shift in thinking among sovereign wealth managers.

Fears that the freezing of Russian assets creates a dangerous precedent

The survey results show that a “significant share” of central banks are concerned that the freezing of Russian assets has set a precedent. Almost 60% of respondents said the measure made gold more attractive, while 68% chose to keep their holdings at home, up from 50% in 2020.

A central bank official, speaking on condition of anonymity, said:

“The gold was stored in London, but now we’ve moved it back into the country to keep it as a safe haven.”

Invesco’s director of formal institutions Rod Ringrow, who followed the report, says that view is widespread.

“If it’s my gold, I want it in my country, that’s the mantra I’ve been hearing for the last year,” said Rod Ringrow.

Where are central banks and investment funds headed now?

Geopolitical concerns combined with opportunities in emerging markets are also prompting some central banks to diversify their holdings beyond the US dollar. About 7% believe that rising US debt is a negative factor for the dollar, although they do not see an alternative to the dollar as the world’s reserve currency.

The share of those who see the Chinese yuan as a potential competitor fell to 18% from 29% last year. Almost 80% of the 142 institutions surveyed see geopolitical tensions as the biggest risk over the next decade, while 83% say inflation is a concern over the next 12 months.

Currently, infrastructure is considered the most attractive asset class, especially those projects that involve the production of renewable energy.

Concerns about China mean India remains one of the most attractive countries for investment for the second year in a row, while the trend for companies to build factories near where they sell their products is making countries such as Mexico, Indonesia and Brazil.

Along with China, the UK and Italy are seen as less attractive, while rising interest rates, combined with home working and online shopping taking hold during the Covid-19 pandemic, mean property is now one of the least attractive. asset classes.

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