Gold overtakes dollar emerging top hedge for central banks amid geopolitical risks, says report

Gold has emerged as the top hedge for central banks amid ongoing geopolitical risks. According to a recent survey of public investors by the Official Monetary and Financial Institutions Forum (OMFIF), a net 30 per cent of central banks intend to increase their gold holdings over the next one to two years. The report noted that 82 per cent of central banks held physical gold reserves in 2026, compared with 71 per cent in the last year.

The survey found that around 61 per cent of central banks expect the gold prices to trade between USD 5,000 and USD 6,000 per ounce by June 2027, while 28 per cent stated that recent prices are discouraging enough to make further purchases. "The motivation behind gold purchases is increasingly strategic rather than purely financial. Protection against geopolitical risk is cited by 51 per cent of respondents, up 11 per cent from 2024," according to the report.

The survey found that about 61 per cent of central banks expect gold prices to trade between USD 5,000 and USD 6,000 per ounce by June 2027. However, 28 per cent indicated that current gold prices are already high enough to discourage additional purchases.

Dollar alternatives

The OMFIF study also pointed out that the euro and renminbi are the top alternatives to the dollar among central banks. It also highlighted that emerging market currencies are getting attention. "This year, 29 per cent of respondents plan to increase euro holdings in the long term, up from 22 per cent last year," the survey report stated. However, the report underscored that both currencies have some handicaps.

"Neither the euro nor the renminbi fully solves reserve managers' problem: the former lacks a single, deep safe asset market, while the latter remains constrained by market structure and geopolitical concerns," the report said. In addition, adoption of artificial intelligence (AI) among central banks allow to improve efficiency and decision-making.

"89% of developed economy central banks report some form of artificial intelligence implementation, compared with 44% of emerging market peers," the report mentioned. The report found that volatility is being seen as something that needs better management rather than just a wait-and-watch approach. "The old assumption that public investors can wait for the environment to normalise looks increasingly unrealistic," the report said.