In a survey of central banks, 95% of respondents expect the gold reserves held by central banks worldwide to increase further over the next 12 months. What is this expectation based on? And how does the gold market actually work? We discuss this with Wouter Hueskes, Senior Portfolio Manager of Commodities at APG.
The ‘Central Bank Gold Reserves Survey 2025’ was conducted by the World Gold Council, a trade association for the gold industry. In the survey, 43 percent of respondents indicated that they would expand their own gold reserves within the next twelve months, and virtually all 73 participating central banks expect central bank gold reserves worldwide to increase.
If 73 central banks participated in the survey, while their number worldwide is more than double that, how representative are the results?
Hueskes: “The most important central banks are participating. Although not all banks worldwide participated, I think the report provides as complete a picture as possible of the gold holdings of all central banks.”
Since the beginning of 2024, the gold price continues to break records. Are the central banks that are buying gold playing a role in this?
"Central banks hold an estimated 20 percent of above-ground gold reserves as official reserves, but the impact of their purchases or sales on the price depends on their share of total activity in the gold market. It is possible that their influence on the gold market is now greater than reflected in their holdings. However, the three other main segments of the gold market also have an influence: jewelry, including demand for gold for jewelry, gold investors, and industrial applications. All in all, you could say that the increased demand for gold from central banks is an important reason for the rise in price, but certainly not the only one. There are even larger segments that are important to take into account here."
The report notes that this acceleration in central bank demand for gold has increased “against a backdrop of geopolitical and economic uncertainty.” Would you say that this acceleration is directly caused by increased geopolitical and economic uncertainty?
"Yes, I think that's correct. Of course, there are other reasons why central banks are adding gold to their reserves. One of them is ‘de-dollarization’. Many countries, including China and Russia, aim to reduce their dependence on the US dollar. Gold is seen as a politically neutral reserve over which no central bank has control. Moreover, gold is a hedge against default because you are not dependent on a counterparty. However, this must be physical gold stored in your own country. Another important reason that has come to the fore is that gold offers a country immunity from sanctions. As we have seen with Russia, currency reserves can be frozen. This is not possible with gold, but the same principle applies here: provided that a central bank has stored it in its own country. Politically less stable countries such as Russia, Turkey, and Kazakhstan are therefore clearly emerging as buyers. Diversification is another reason why central banks want gold as part of their reserves. This includes multiple currencies, as well as gold, because it has a low correlation with other financial assets. Gold is still regarded as a universal store of value."
If all this demand pushes up the price of gold, won't there come a point where the risk of it losing its value becomes too great for a central bank to bear?
"That's possible. There are central banks that say, ‘We have a lot of gold and we want to sell it because the price is good right now.’ They see that ten-year US bonds, for example, are at 4.27 percent and want to trade some gold for them. And of course, the price of gold could also fall sharply, for example, if peace were to be achieved between Russia and Ukraine and Iran faded into the background. The demand for gold as a hedge would then decrease, putting pressure on the price.
However, I do think that there are structural forces at work that could attract new buyers if the price of gold were to fall significantly. Parties for whom gold becomes interesting again for strategic reasons, such as the need to become less dependent on the US dollar and to avoid default risk."
How big is Russia's role when it comes to the increased demand for gold from central banks?
"That's a difficult one, because there has been little transparency about Russia since the international sanctions. The country no longer participates in any reporting. What we do know is that their gold reserves were mainly accumulated before 2022. That accumulation began in 2014, when they invaded Crimea and faced the first sanctions. At that time, they primarily stored the gold domestically, so they took an anticipatory route. However, I wouldn't want to speculate on how their reserves have developed over the last two years, as there isn't really any reliable reporting on that.
However, Russia is a relatively small player. China is the country to keep an eye on. The central banks of many developed markets, such as the US, Germany, Italy, and France, already hold a high percentage of gold in their total reserves. The Netherlands is also around 60 percent. These countries will therefore be less inclined to rapidly build up their reserves. It is mainly countries that are sensitive to sanctions or want to reduce their dependence on the dollar, and those with a low percentage of gold in their total reserves. China has by far the most significant currency reserves in the world, and its allocation to gold is – roughly estimated – only 6.5 percent. The country is the largest emerging buyer and is actively expanding its gold reserves. It therefore still has considerable room to grow."