Central banks around the world are selling gold in the aftermath of Middle East conflicts. While falling gold prices play a role, surging oil prices and increased currency volatility are the bigger drivers. Countries are selling gold to secure dollars for foreign exchange market intervention.
Turkey's central bank reduced its gold holdings by 131 tons in March alone, while Poland is considering gold sales to fund military expansion. Russia has also been selling gold for several months. Nations are effectively dipping into their emergency reserves amid geopolitical risks.
China is moving in the opposite direction. The People's Bank of China has been buying gold for 17 consecutive months, adding 4.5 tons in March to bring its holdings to 2,108 tons. China is absorbing the gold that emerging markets are releasing. This is not a short-term response to price movements. The central bank has continued purchasing even as the dollar value of its gold holdings declined, resulting in losses. The calculation extends beyond managing yuan volatility—Beijing aims to enhance asset security and accelerate the internationalization of the yuan. PBOC Governor Pan Gongsheng's statement about "strengthening cross-border connectivity of payment systems" appears to be more than mere rhetoric.
Europe is making different calculations. While China sweeps up gold, European nations are seeking to repatriate gold stored at the U.S. Federal Reserve. The Bank of France sold 129 tons of Fed-held gold in the United States, then repurchased equivalent amounts in Europe. While officials emphasize trading profits, markets interpret this as relocating gold without political or logistical complications. France stores 2,437 tons of gold in "La Souterraine," an underground vault in Paris.
Germany's Bundesbank is also wrestling with the 1,236 tons of gold it keeps at the Fed. The perception is spreading that U.S. political risks have damaged trust in the Federal Reserve. Hong Kong is eyeing this opportunity. The Hong Kong government plans to pilot a central gold clearing system this year and build storage capacity exceeding 2,000 tons within three years.
The Bank of Korea's gold holdings stood at 104.4 tons at the end of last year, representing just 3.2 percent of foreign exchange reserves—unchanged since 2013. Liquidity concerns and symbolic considerations make movement difficult, but with war and currency instability converging, further delays in asset diversification would be unwise. If physical gold poses challenges, perhaps Korea should start with gold exchange-traded fund investments.
