Gold in 2024 rewrote the history of world reserves. According to the European Central Bank report, the euro for the first time and it happened – right after the US dollar – the second most important reserve asset of central banks. At the end of last year, 20 percent of their official foreign exchange reserves were, while Euro 16 percent. The dollar holds a leading position with a share of 46 percent (see graph below).
Central banks around the world continue at a high pace of gold shopping. For the third consecutive year they have bought over a thousand tons, which corresponds to about one fifth of global annual production. The volume of gold in their possession thus approached the levels of the Brettonwood system, when the currencies were still tightly attached to the dollar covered with gold. Currently, central banks are held by approximately 36,000 tons, almost the same as in the middle of the 60s, when the reserves reached historical maximum. Country such as China, India, Turkey or Poland participated in record demand. Dramatic price growth also played its role. Last year, gold increased by 30 percent, this year added another 27 percent and got to a new historical maximum – $ 3,500 per troy ounce. Why such an interest in an asset that does not carry any yield and whose storage is not cheap? The answer is simple: independence and protection against geopolitical risks. After a Russian invasion of Ukraine and freezing part of Russian foreign exchange reserves, many countries realized that the assets denominated in dollars or euros are not unintegrated. On the other hand, gold cannot be sanctioned or frozen – it is not a commitment to another institution. Surveys show that, in addition to diversification and securing against inflation, the need for policy against political and financial risks is also played. In the last three years, the most significant increase in the share of gold in reserves has seen states geopolitically oriented towards China and Russia. In addition, the ECB analysis shows that in the five out of the top ten annual growth of the share of gold since 1999, these were countries that were exposed to international sanctions in a given or previous year. It was long true that the price of gold is in the opposite way to real yields – that is, that it is growing when real interest rates fall. However, this relationship has stopped manifesting itself since 2022. Gold has also maintained growth in higher yields, suggesting that investors are increasingly perceived as a safe geopolitical port – not just as protection against inflation. Gold thus reaffirms its historical role in the preservation of value. In 2024 it is not only recordly expensive, but also geopolitically relevant. At the time of growing uncertainty, it becomes a key pillar of the currency strategy of many central banks – and there is no indication that the trend should turn. Lukáš Kovanda, Ph.D. Chief economist, Trinity Bank
Trinity Bank Trinity Bank has been operating on the financial market for 25 years and has been created by the transformation of the Moravian Monetary Institute – a savings cooperative. It has more than 92,000 clients and its balance sheet exceeds CZK 65 billion. Trinity Bank specializes in private and corporate banking, and for natural persons it focuses primarily on deposit and savings products offering above -standard evaluation of savings. More information at: www.trinitybank.cz