An increasing number of countries are choosing to repatriate their gold reserves in response to the unprecedented sanctions imposed by the West on Russia. According to a survey conducted by Invesco, a financial services company, sovereign wealth funds and central banks are rethinking their strategies due to widespread losses from last year’s financial market turmoil. This has led them to fear higher inflation and further geopolitical tensions, prompting a shift in their investment approach.
The survey revealed that 85% of the 85 participating sovereign wealth funds and 57 central banks believe that inflation will be higher in the coming decade compared to the past. Furthermore, a significant proportion of central banks expressed concern about the impact of sanctions on Russia. Nearly 60% of respondents stated that these sanctions have made gold more attractive as an investment option. Additionally, 68% of surveyed institutions said they are now keeping their reserves at home, up from 50% in 2020.
Rod Ringrow, Invesco’s head of official institutions, commented on the shift, stating, “‘If it’s my gold then I want it in my country’ has been the mantra we have seen in the last year or so.” This sentiment is echoed by a central bank that anonymously told Reuters, “We did have it (gold) held in London… but now we’ve transferred it back to [our] own country to hold as a safe haven asset and to keep it safe.”
The freezing of approximately half of Russia’s $640 billion worth of gold and forex assets held abroad by Western central banks last March has been a catalyst for this change. These assets were included in various rounds of sanctions imposed on Russia due to the conflict in Ukraine. Moscow has strongly condemned this action, describing the freezing of its assets as theft and warning of potential retaliatory measures.
The Invesco survey also highlighted that geopolitical concerns, along with opportunities in emerging markets, have prompted some central banks to shift away from the US dollar. Among the respondents, 7% believe that the mounting US debt is negative for the greenback. However, despite these concerns, most still see no viable alternative to the US dollar as the world’s reserve currency.
The repatriation of gold reserves is a significant development in the global financial landscape. It reflects the increasing uncertainty and distrust among countries as they navigate through geopolitical tensions and economic uncertainties. As central banks and sovereign wealth funds prioritize the safety and security of their assets, the trend of keeping reserves at home is likely to continue. This shift could have implications for the global financial system and the role of traditional reserve currencies.
In conclusion, the Invesco survey highlights the growing trend of countries repatriating their gold reserves in response to the sanctions imposed on Russia. It also underscores concerns about higher inflation and geopolitical tensions. As central banks and sovereign wealth funds rethink their investment strategies, the demand for gold as a safe haven asset has increased. This shift could potentially impact the global financial system and the dominance of the US dollar as the world’s reserve currency.