Central Banks Storing More Gold Domestically Amid Geopolitical Tensions

More and more central banks are storing gold bullion at home rather than overseas, as they expect to buy more of the safe-haven asset amid heightened geopolitical tensions.

These are among the findings of the World Gold Council's annual Central Bank Gold Reserves survey.

It found that monetary authorities still see gold as a key hedge against inflation, geopolitical shocks and currency risk, despite a recent pullback in prices during the Iran conflict.

Central banks have bought an average of 1,000 tonnes annually over the past four years — double the average over the previous decade, per the survey. Nearly nine in 10 central banks that responded said they expected global central bank gold reserves to increase over the next year, while 45% expect their own holdings to grow. Only 1% expect reserves to decline.

The survey, conducted between February and May and based on responses from 74 central banks, also points to more central banks choosing to hold a larger share of their gold domestically, rather than in widely used locations, like the Bank of England or the Federal Reserve Bank of New York.

A total of 9% of respondents said they increased domestic storage over the past 12 months, up from 5% a year earlier. Another 10% said they diversified their overseas storage locations, compared with just 2% in last year's survey.

Analysts say deteriorating geopolitical relations are driving the reassessment. Russia's invasion of Ukraine and the subsequent freezing of roughly $300 billion in Russian foreign assets heightened concerns about how accessible reserves held abroad would be during periods of political tension.

"The fear that the assets cannot be accessed abroad is, since 2022, driving some central banks to repatriate gold held abroad," Giovanni Staunovo, a commodity analyst at UBS, told CNBC.

Staunovo added that gold often carries symbolic significance as a national asset, creating an additional incentive to keep reserves at home.

He said France's central bank had been reducing exposure recently by selling gold holdings in the U.S. and buying an equivalent amount in Europe, without physically moving bullion.

"We expect central banks to buy 750-1,000 metric tonnes of gold this year. Such demand may not drive prices sharply higher on its own, but we believe it will provide a stable foundation for the market and help offset softer jewellery and investment demand," Staunovo added.

The World Gold Council's survey found that 7% of respondents said they plan to increase domestic storage over the next year, while 9% expect to diversify their overseas storage arrangements, up from 2% in the last survey.

Dan Coatsworth, head of markets at AJ Bell, said the survey findings reflect a broader effort by central banks to reduce concentration, both in their assets and where they hold them.

"Just like any investment, it is prudent to spread risks — and that includes where assets are held," he said.