[Edaily Reporter Kim Kook Bae ] Central banks around the world are snapping up gold. They purchased nearly 290 metric tons of gold in the second quarter alone, marking the largest second-quarter purchase volume on record. Analysts say that demand for gold is being driven by efforts to hedge against geopolitical uncertainty while diversifying foreign exchange reserves that are heavily weighted toward the U.S. dollar.

According to the World Gold Council (WGC) on the 9th, central banks’ net gold purchases in the second quarter totaled 289 metric tons, a 62% increase compared to the same period last year. This was five times higher than the first quarter’s figure (57 metric tons).

By country, the National Bank of Poland purchased the most at 51 metric tons, while Uzbekistan (16 metric tons), Kazakhstan (15 metric tons), Jordan (6 metric tons), and the Czech Republic (6 metric tons) also increased their gold reserves. The People’s Bank of China purchased an additional 33 metric tons, marking the largest quarterly increase since the fourth quarter of 2023 (44 metric tons). The People’s Bank of China’s cumulative gold reserves now total 2,346 metric tons. However, the Central Bank of Russia reduced its holdings by 22 metric tons in the second quarter.

The primary reason central banks are steadily buying gold is to diversify their foreign exchange reserve portfolios and spread risk. Unlike the currency or government bonds of a specific country, gold is not directly exposed to the credit risk of the issuer, and it can serve as a store of value when geopolitical conflicts or financial market instability intensify. In particular, concerns that dollar-denominated assets could be weaponized at any time—following the West’s freezing of Russia’s foreign exchange reserves in 2022—are cited as a key reason driving central banks toward gold. Accordingly, analysts note that central banks are increasing their allocation to gold to reduce dependence on the dollar and other currencies while enhancing the long-term stability of their foreign exchange reserve management.

In addition, the slight decline in gold prices appears to have driven the increase in gold purchases. Gold prices fell significantly from their peak early this year, at one point dropping below $4,000 per troy ounce.

In line with this trend, the Bank of Korea recently decided to increase its gold reserves for the first time in 13 years. It has already purchased a small amount of gold exchange-traded funds (ETFs) in the second quarter and is moving forward with purchases of physical gold. It has also expanded its procurement channels, including establishing a cooperative framework to purchase domestically produced gold. Currently, the Bank of Korea ranks 40th among the 100 countries tracked by the World Gold Council (WGC) in terms of gold reserves.

Central banks’ preference for gold is not expected to be a short-term phenomenon. The WGC analyzed that “central banks’ investment sentiment toward gold remains very strong.” In fact, in a recent WGC survey, 45% of central banks responded that they “will increase their gold reserves over the next year.” Furthermore, 74% anticipated that the share of U.S. dollars in global foreign exchange reserves would decline significantly over the next five years. According to the WGC, central banks have purchased an average of 1,000 metric tons of gold annually over the past four years. This is double the average of 500 metric tons recorded over the previous decade.

International gold prices rose 0.84% last month, ending a four-month losing streak. On the 7th (local time), the price surged to $4,340.45 per troy ounce, hitting a seven-week high. This was driven by weakened expectations for interest rate hikes following weaker-than-expected U.S. nonfarm payroll data. When the likelihood of interest rate hikes decreases, the opportunity cost of holding non-interest-bearing gold decreases, which is positive for the metal.