Since 2009 central banks worldwide have been on a gold buying spree, adding almost 4,000 tonnes of the yellow metal to their reserves. The value of their total gold holdings is around $1.4tn, or 10% of all central bank foreign exchange assets. This rapid increase in gold holdings follows an extended period of decline from the early 1970s to the 2008 financial crisis.

Since the crisis there has been renewed interest in gold’s unique characteristics as a safe haven asset that is nobody’s liability. This, combined with scepticism over prospects for some of the main reserve currencies and a prolonged period of low interest rates, has amplified gold’s appeal. More recently, heightened geopolitical risks have contributed to renewed interest in its ‘safe asset’ quality. Prospects of rising inflation in the US and elsewhere could spur further demand.

As the renminbi becomes more widely used in international payments and settlements, central banks are taking a growing interest in the currency. The shift towards a multicurrency reserve system will be accompanied by a period of heightened financial uncertainty, supporting central bank demand for gold. As a greater range of reserve currencies emerges, gold could play an increasingly important role in the monetary system.

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