Good old gold: why central banks are stockpiling tons of the metal

Wars, rising inflation, rising interest rates and tensions between major powers, in addition to the Covid-19 pandemic, have led central banks in emerging countries and major powers to reinforce their protective stocks in an asset that never goes out of fashion: gold. Since 2022, the metal has been acquired in large volumes, in the search for solidity and reserves.

“This is a classic. Whenever the world starts to go downhill, gold jumps. Gold is an asset that doesn’t depend on anyone, not on the government, not on the bank, not on a contract,” says Raul Senna, financial educator and CEO of investment consultancy AUVP Capital.

In the post-pandemic period, and with the start of the war in Ukraine, in the face of sanctions and the freezing of assets applied to Russia, some countries chose to reduce their dependence on the dollar, making gold a natural choice to diversify their reserves, in a protective move.

The trend continued in 2023 and 2024, especially after the election of Donald Trump, when a new gold rush began, due to the volatility shown by the markets in the face of the tariff hikes of his second term and, more recently, due to the escalation of tensions in the Middle East.

“Gold has made a strong comeback in recent years because we are living in an era of uncertainty. It is a real asset, scarce and has a history of increasing in value during times of crisis,” said Sabrina Gravatá Fragomeni, head of business development at Global X ETFs.

According to a report by JP Morgan, the price of gold could reach US$4,000 per troy ounce in the third quarter of this year. In addition, the Federal Reserve 's signaling of a possible reduction in US interest rates could keep interest in the metal high: historically, gold benefits from the easing of monetary policies.

The 10% drop in the value of the dollar in the first half of this year also points to the growing appreciation of the metal. According to the American bank's estimates, central bank demand for gold should remain at around 710 tons per quarter this year.

And it’s not just central banks that are taking aim at gold. Florida Governor Ron DeSantis signed a law on June 26 allowing gold and silver to be used as payment in the state. The new rule went into effect on July 1.

In justifying the measure on his social media, the governor stated that the state defends freedom, economic self-determination and resistance to government interference. The state of Utah, in turn, implemented a law in 2011 to recognize gold and silver as legal tender.

Security reserve: gold was the backing of the dollar

Because it is scarce and has a high value, gold is traditionally a safe haven asset for the financial market. For example, the gold standard came into effect in 1944, when the metal served as a backing for the dollar – each coin issued was linked to a certain amount of the metal.

Since 1971, there has been no such backing. At that time, the troy ounce of gold was trading at US$ 35. If compared to the US$ 3,346 price per troy ounce on Friday (4), the value was multiplied by more than 95 times, without considering inflation in the period.

Even with the current appreciation, the metal has not yet reached the levels of the 1980s. According to Bloomberg, with inflation adjustment, the troy ounce at that time would be the equivalent of US$ 3,800 today.

According to the agency, in the last 25 years gold has increased in value tenfold, even surpassing the S&P 500 index, the main indicator of the US stock markets, which has quadrupled in the same period.

According to Raul Senna, despite not generating income or paying dividends, gold does not break and has no risk of default. “That is why gold has survived empires and crises, and continues to make sense in any portfolio seeking protection,” he said.

Asset freeze raised alarm bells

One of the main factors that increased the search for gold from 2022 onwards was the war in Ukraine. With the freezing of Russian assets, the alert was raised for the use of the dollar as a weapon to block certain countries.

Thus, since the beginning of the war in Ukraine, there has been a spike in gold purchases by central banks, which have gone from about 500 tons per year to more than a thousand tons per year. The trend has been repeated in 2023 and 2024, and is likely to be repeated this year.

Furthermore, gold is considered a hedge against inflation, as the metal is less prone to devaluation. It is no coincidence that shocks in the international economy as a whole also tend to increase the price of the metal.

With the 2008 crisis, for example, gold surpassed the US$1,000 mark per troy ounce. The Covid-19 pandemic raised the value to more than US$2,000. After this period, the value of the metal depreciated, to around US$1,600.

However, in 2023, central banks began to diversify their reserves and buy gold again, fearing the negative impacts of the dollar. In early 2024, it was China's turn to boost its purchase of the metal, amid concerns about its own economy.

After Donald Trump's election and the uncertainty surrounding his trade policy, gold prices began to rise again. In March of this year, for the first time in history, it surpassed the nominal mark of US$3,000 per troy ounce, equivalent to 31.1 grams, driven by the high volume of purchases by central banks.

Ordinary investors can also opt for gold as a reserve

Even with the increase in price, gold can also be an option in investors' portfolios. Raul Senna, from AUVP Capital, states that it is only useful for those who want to protect part of their assets, especially in times of instability in variable income.

However, he says that it is necessary to be cautious when investing. “Gold, by itself, will not make anyone rich. It serves more as a shield than a sword,” he said. He also explains that investments in gold serve solely as a store of value. In other words, they serve to protect and not to generate profit.

For Sabrina Fragomeni, from Global X ETFs, ETFs – funds with shares traded on the stock exchange – related to the metal are an excellent option. “In addition, there are investment funds that track the price of gold and there is also the possibility of operating futures contracts,” she said.

Another investment option is physical gold, which involves storage capacity and security. Although it is less common, it is also possible to purchase gold from authorized brokers.