Central banks diversify gold storage to mitigate political risks

Central banks are increasingly diversifying the geographic locations of their gold reserves to mitigate political and legal risks, according to analysis from Goldman Sachs and research by the World Gold Council. While London and New York remain the primary global hubs for gold custody due to high liquidity and integrated settlement networks, there is a growing trend toward distributing assets across more countries to reduce dependence on single governments or legal jurisdictions.

Data shows that 57% of surveyed central banks hold a portion of their gold at the Bank of England, making it the most popular foreign custodian. The Federal Reserve Bank of New York follows with 14%. Other significant destinations include the Bank for International Settlements in Switzerland and the Bank of France, while China is actively working to establish itself as an alternative international storage hub.

Maintaining gold in major financial centers like London and New York provides central banks with immediate market access and the ability to utilize reserves for dollar liquidity through swaps. However, the risk of asset freezes remains a concern, highlighted by the 2018 dispute regarding Venezuelan gold held in the UK. Goldman Sachs noted a significant increase in central bank gold purchases, with 57 tons bought in June compared to a monthly average of 17 tons, led largely by China.