(Kitco News) - Analysts have been extremely bullish on gold, as the precious metal has re-established itself as an important monetary asset within the global economy. According to sentiment within the official sector, this trend, which began in mid-2022, is not expected to reverse anytime soon.
According to survey results published by the Official Monetary and Financial Institutions Forum (OMFIF) on Tuesday, 32% of central banks plan to increase their exposure to gold in the next 12 to 24 months, the most conviction seen in the last five years.
“A net 40% plan to purchase gold over the next 10 years – higher than for any other asset class. Diversification and protection against geopolitical risk are cited as the primary motivations for this decision,” the report said.
The OMFIF’s Global Public Investor Survey has tracked central bank reserve managers’ investment strategies since its inception in 2014. This year, 75 central banks participated in the survey, which showed growing interest in creating diversified official reserves.
Demand for gold comes as central banks look to move away from the U.S. dollar. The survey showed that 16% of participants decreased their exposure to the greenback, up from 11% reported in 2024.
The survey noted that the U.S. dollar is the only currency that central banks are looking to reduce their exposure to. Although gold remains the top portfolio diversifier this year, the survey showed growing demand for the euro and Chinese yuan.
The report noted that last year, the U.S. dollar was the most in-demand currency among central banks.
“This is attributable to rising concerns about the US political environment, highlighted by 70% of respondents, up from 31% last year, as well as geopolitics and US fiscal risks. The caution extends to global public funds – more than half think that US market exceptionalism will end,” the survey said.
According to the survey, diversification is the number one reason why central banks are buying gold, the second reason is as a hedge against geopolitical risks and the third factor driving demand is to hedge against inflation.
“Although portfolio diversification remains the primary motivation for investment in gold, geopolitical concerns are increasingly influential. This was cited by 45% of respondents, up from 40% in 2024 and 35% in 2023,” the report. “When asked about their principal sources of geopolitical concern, an overwhelming 96% of central banks selected tariffs and trade protection. This is not a temporary consideration: over 80% of reserve managers have geopolitics in their top three factors shaping longer-term investment decisions, ahead of inflation, real interest rates and technological change.”
Although demand for U.S. dollars has fallen, the greenback is still expected to remain the world’s reserve currency. The survey noted that over 80% of central banks said the dollar still provides safety and liquidity, and the vast majority expect it to constitute over 50% of global reserves over the next decade.
“Central banks, therefore, anticipate gradual currency diversification rather than rapid de-dollarisation,” the report said.
In line with analyst expectations, the survey also shows that gold’s elevated price level is not a major deterrent to increasing official reserves. According to the survey 90% of respondents remain bullish on gold.
“The vast majority of central banks and public funds respondents expects the gold price to remain above $3,000 per ounce over the next year, with over 20% anticipating a record high of above $3,500 per ounce.
This is the second central bank survey that looked at gold in as many weeks. Last week the World Gold Council published its Annual Central Bank Gold Survey, which showed similar results as central banks look to increase their gold holding in the next 12 months.
The reasons for owning gold also matched between the two surveys.
Analysts are expecting central banks to increase their gold reserves by another 1000 tonnes this year, making it the fourth year in a row.
