Gold renaissance among central banks: can gold reserves reduce sovereign credit risk?

Joanna Bogołębska, Ewa Feder-Sempach, Ewa Stawasz-Grabowska and Bojan Pejović

Chapter 6 in Are Central Banks Still Conservative?, 2025, pp 131-155 from Edward Elgar Publishing

Abstract: The main objective of the chapter is to fill the research gap by theoretically and empirically investigating the motives behind the gold renaissance among central banks in light of the recent increase in their purchases, which peaked in 2022. The reasons for gold purchases are intertwined, having both geopolitical and economic origins, and one of the drivers of gold accumulation may be the need to reduce sovereign credit risk, which is of importance especially in the case of emerging markets. Higher central bank gold reserves may be perceived as a symbol of conservatism due to the safe-haven property of gold and its inflation hedge atrributes. Motivated by theoretical considerations, we empirically analyze whether higher central bank gold holdings are found to reduce sovereign risk as measured by ten-year government bond yields in countries that accumulated the highest amount of gold. This study was carried out during the 19-year period 2004–22, which encompassed the global financial crisis, COVID-19 pandemic, and Russian invasion of Ukraine. The results suggest that central bank gold reserves can reduce sovereign credit risk. This effect was stronger during 2022, when central bank gold purchases hit record highs amid soaring inflation and increased geopolitical tensions.

Keywords: Central banking; Gold; International reserves; Sovereign credit risk (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035337569
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