Gold in Central Bank Reserves: Strategic Considerations, Market Risks, and Practical Guidance

Gold has re-emerged as a prominent component of central bank reserves, largely reflecting valuation gains from higher gold prices rather than large-scale accumulation. This Note assesses gold’s role from a reserve management perspective, emphasizing that while gold carries no credit risk and may support long-term balance-sheet resilience, it is highly volatile, offers only conditional hedging and diversification benefits, and is ill-suited to the liquidity tranche of reserves. The analysis recommends applying explicit market-risk haircuts when assessing gold’s effective liquidity and avoiding interpretations of valuation gains as durable improvements in reserve adequacy. It also cautions that domestic gold purchase programs—especially those involving non-monetary gold—can create mandate, governance, balance-sheet, financial integrity, operational, and monetary policy risks. Central banks should treat gold as a high-risk reserve asset and anchor gold accumulation decisions in strategic asset allocation and sound policy analysis.