Countries are so Spooked by De-Dollarization and the Western Sanctions Against Russia, they are Increasingly Moving Gold Assets Back Home for Safekeeping

(Market Insider) Central banks and sovereign wealth funds are increasingly calling their gold assets back home amid concerns that their assets abroad could be frozen — in a situation similar to Russia after it invaded Ukraine — according to a survey of central banks published on Sunday.

About 41% of survey respondents expect to increase gold allocation in their portfolios over the next three years, according to asset manager Invesco, who surveyed 85 sovereign investors and 57 central banks between January and March.

Of this group, two in five said this is because they are concerned about their assets being frozen — as demonstrated by Western sanctions against Russia.

Central banks around the globe snapped up a record 1,136 metric tons of gold last year, marking a 12th straight year of increasing in gold purchases, the World Gold Council said in a February report.

But central banks appear to be less willing to keep their physical gold assets in storage overseas, with just under 70% of respondents now keeping the reserves at home. This percentage is up from 50% in 2020, per the survey.

An unnamed central bank in the West told Invesco that the institution increased its gold holdings eight to 10 years ago and used to hold it in London. "But we've now transferred our gold reserves back to our own country to keep it safe — its role now is to be a safe-haven asset," said the central bank.

Central banks' increased purchase of gold also follows a global shift away from the US dollar as the world's reserve currency.

The US dollar has been the world's reserve currency since the Second World War, playing a crucial role in the world's trade and financial system. But sweeping sanctions against Russia that expelled the country from the US dollar-dominated global financial system spooked other countries so much that they are now lining up backup currencies for trade.  

Still, central banks generally agree there is no clear alternative to the greenback as the world's dominant reserve currency, according to the Invesco survey.

The Chinese yuan isn't really the answer in the short-term too, the survey indicates. Just 18% of respondents said they think the yuan will become a "true reserve currency in five years" — down from 29% last year who agreed with the stance.

"People have been looking for alternatives to the dollar and euro for a long time and they would've gone to them already if there were any suitable alternatives," an unnamed central bank in an emerging market told Invesco.