Central Banks Say More Gold for FX Reserves Coming

LBMA Miami Conference

Bloomberg reported yesterday (link) from the LBMA’s Miami conference. Here is a breakdown of what they saw.

Gold purchases by central banks have been a major force behind this year’s record-breaking rally in bullion. Normally, officials don’t give much warning before making moves to increase their holdings.

But in a rare shift, central bank representatives from Mexico, Mongolia, and the Czech Republic openly discussed their interest in boosting gold reserves. Speaking at the London Bullion Market Association’s annual conference in Miami, they shared insights into why gold could play a bigger role in their portfolios, given the current mix of geopolitical tensions and low interest rates.

Joaquín Tapia, director of international reserves at Banco de México, pointed to the broader uncertainty ahead.

“With lower rates, geopolitical tension, and the US election, we might see an increase in the share of gold in our portfolios,” he said.

Echoing Tapia, Enkhjin Atarbaatar from Mongolia’s central bank and Marek Sestak of the Czech National Bank agreed. Atarbaatar added that Mongolia’s reserves are expected to grow, with gold likely becoming a larger portion of them in the future. Sestak, deputy executive director of the Czech central bank’s risk-management department, confirmed: “I completely agree.”

Gold has surged over 25% in 2024, far outperforming US stocks and bonds, with central banks driving the unprecedented buying spree. Their goal: protect national wealth from geopolitical and economic risks by increasing their bullion holdings.

On average, central banks hold about 15% of their foreign exchange reserves in precious metals, according to Terrence Keeley, CEO of Impact Evaluation Lab and former senior executive at BlackRock, where he worked closely with central banks and sovereign wealth funds.