Study: Countries Returning Gold in Response to Sanctions Imposed on Russia

Increasingly, countries are choosing to repatriate their gold reserves as a safeguard against potential sanctions from the West, as reported by a recent survey conducted by Invesco. This move comes in response to the financial market turbulence experienced last year, which resulted in significant losses for sovereign money managers. As a result, these managers are now reevaluating their strategies, expecting higher inflation and geopolitical tensions to persist.

According to the survey, a majority of central banks and sovereign wealth funds believe that inflation will be higher in the coming decade than in previous years. In this environment, gold and emerging market bonds are considered favorable investments. However, the freezing of a large portion of Russia’s gold and forex reserves by the West in response to the Ukraine conflict has also played a role in shifting sentiment.

The survey revealed that many central banks were concerned about the precedent set by the freezing of Russia’s reserves. As a result, a significant number of respondents found gold more attractive, and more central banks are keeping their reserves at home as a safe haven asset. One bank even stated that they transferred their gold back to their own country for safekeeping.

In addition to repatriating gold, some central banks are diversifying away from the dollar due to geopolitical concerns and emerging market opportunities. A small but growing percentage view rising U.S. debt as a negative factor for the dollar. However, most still see no viable alternative to the dollar as the world’s reserve currency. The number of respondents who see China’s yuan as a potential contender has decreased compared to the previous year.

The survey also highlighted that geopolitical tensions and inflation are viewed as the biggest risks over the next decade. As a result, infrastructure projects, especially those focused on renewable energy generation, are seen as the most attractive investment opportunities. India remains an attractive country for investment due to concerns over China, and the “near-shoring” trend is benefiting countries like Mexico, Indonesia, and Brazil.

On the other hand, Britain and Italy are perceived as less attractive investment destinations. Rising interest rates, combined with the shift towards remote work and online shopping during the COVID-19 pandemic, have made property the least attractive private asset.

According to Rod Ringrow, the head of official institutions at Invesco, the wealth funds that performed well last year were those that recognized the risks associated with inflated asset prices and were willing to make significant changes to their portfolios. Going forward, these institutions are focused on addressing the challenges posed by higher inflation.

The survey findings underline a significant shift in the attitudes and strategies of central banks and sovereign wealth funds, reflecting the evolving global economic landscape and the need to safeguard against geopolitical risks and rising inflation.

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