UAE Central Bank hedges against uncertainty with gold

Alamy via Reuters

• UAE gold holdings up 20%
• India and Poland largest buyers
• Gold seen as safe investment

The Central Bank of the UAE has increased its gold reserves by 19.7 percent year on year, reaching AED20.6 billion ($5.6 billion) by the end of May 2024, and up from just AED1.1 billion in 2018.

The CBUAE’s decision to boost its gold reserves aligns with similar actions by other nations. According to the World Gold Council, global central banks’ demand in the first half of 2024 was the highest on record.

This reflects a growing global trend among central banks to accumulate the metal as a hedge against economic uncertainty and currency fluctuations. 

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In Q2 2024, the National Bank of Poland and the Reserve Bank of India were the largest gold buyers.

The former added 19 tonnes, increasing its total holdings to 377 tonnes, while the latter also bought 19 tonnes, bringing its total acquisitions this year to 37 tonnes.

The Central Bank of Turkey increased its official gold reserves by 15 tonnes, bringing its year-to-date net purchases to 45 tonnes – the highest of any central bank. Turkey’s total official reserves constitute around a third of its total reserves.

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Gold prices have maintained their resilience, showing a modest increase on Tuesday following expectations of significant US interest rate cuts later this year.

Spot prices for the metal increased by 0.1 percent to $2,408.77 per ounce, recovering from its lowest level since July 26 amid a global sell-off over recession fears. 

The outlook for global central bank gold demand remains positive, according to the World Gold Council’s 2024 Central Bank Gold Reserves Survey.

In the survey, 81 percent of respondents expect such holdings to increase over the next 12 months, and 29 percent anticipate that their own institution’s gold reserves will rise.

The survey identifies the main reasons central banks hold gold, with safety being a primary motivation.

Respondents highlighted the metal's role as a long-term store of value and inflation hedge, its performance during crises, its effectiveness as a portfolio diversifier, and its lack of default risk as key factors contributing to its appeal.