JAKARTA - Gold is increasingly being eyed by central banks as part of the country's reserves as geopolitical risks rise and dependence on the US dollar again becomes a concern.
Based on a report by Arab News quoted Tuesday, June 16, the trend strengthened after a survey by the World Gold Council showed the interest of reserve managers to increase the record of gold bars.
State reserves are assets that central banks keep to maintain economic stability, including foreign exchange, bonds, and gold.
For the Gulf region, this finding comes at a sensitive time. Gulf countries are still heavily tied to the US dollar through exchange rate benchmarks and energy trade. At the same time, they face volatile oil prices, tighter global liquidity, and increased geopolitical risks.
Ahmed Azzam, head of market research at Equiti Group, said the World Gold Council's 2026 survey did not mean that new central banks realized the importance of gold.
"The World Gold Council 2026 survey does not indicate that gold suddenly becomes a strategic asset for central banks. The shift has been visible for several years, especially since the sharp acceleration of purchases by the official sector after 2022," Azzam told Arab News.
According to Azzam, the main message of the survey is that the role of gold in reserve management is now more institutionalized and more planned.
The World Gold Council noted that 45 percent of reserve managers expected to increase their institutional gold holdings in the next 12 months. This figure is up 2 percentage points from the previous year.
Of the 74 central banks that answered the question, 54 percent said their gold holdings would remain. Only 1 percent expected a decline.
The annual survey was conducted from February 5 to May 19. According to the World Gold Council, most of the answers came after the Middle East conflict began in late February.
The report also said geopolitical instability now surpasses inflation as the main issue in managing reserves. As many as 88 percent of respondents considered geopolitical risks relevant to their decisions.
Azzam emphasized that the increase in the role of gold should not be read as a step to abandon the US dollar.
"This area remains very much tied to the dollar through currency benchmarks, energy trade, sovereign wealth fund portfolios, and financial market structures," Azzam said.
According to Azzam, gold gives central banks and state institutions a way to spread risk, while still placing the dollar at the center of the system. Dollar exposure means the level of asset or reserve dependence on the US dollar currency.
Gold Performance During the Crisis as a Benchmark
The World Gold Council survey showed that 93 percent of respondents already had gold, up from 81 percent a year earlier. As many as 90 percent of respondents cited gold's performance during the crisis as the main reason for holding the precious metal.
Another reason is that gold is seen as a long-term store of value, a hedge against inflation, and a tool to spread portfolio risk. Among respondents from developing countries, 85 percent said gold was relevant as a hedge against geopolitical risk.
Shaokai Fan, head of central bank affairs at the World Gold Council, said central banks' interest in gold remained strong. The latest price drop did not change their views much.
However, the central bank's demand does not mean that gold prices will continue to rise. Metals Focus consultants estimate that central bank gold demand in 2026 will fall 15 percent year-on-year in terms of tonnage, although it remains above pre-2022 levels.
Fahad Badar from Mercer's global multi-asset team said the survey confirmed that central banks still want to add gold and reduce their exposure to the dollar in the coming years.
However, according to Badar, the surge in gold prices in 2024 and 2025 is not only driven by central banks. Private and institutional investment flows also contribute to the price.
"Whether investors will remain is an open question," said Badar.
Gold Outlook
He assessed that the gold outlook is still two-way. Higher real yields and the US dollar can still take some of gold's role as a safe asset. Real yields are investment returns after inflation is subtracted, while safe assets are assets that investors usually seek when the market is volatile.
The same survey showed that the central bank was starting to take more seriously regulating gold storage. Respondents who increased gold storage in the country rose to 9 percent in the last 12 months, from 5 percent a year earlier.
As many as 10 percent of respondents also stated that they had diversified the location of gold storage abroad, up from 2 percent in the previous survey.
Azzam considers this detail important. Storing more gold in the country and spreading the location of the vault is not only about price, but also control over assets.
The trend has implications for the Gulf region. The United Arab Emirates has become an important center for gold trading and refining. Saudi Arabia is also expanding mining and mineral development as part of economic diversification.
On the other hand, the central bank's interest is inversely proportional to consumer demand. Previous World Gold Council data showed that gold jewelry demand in the Gulf and Middle East fell 23 percent year-on-year to 34.5 tons in the first quarter of 2026 due to high prices and weakening purchasing power.
Saudi Arabia is relatively stronger. Jewelry demand in the country fell 13 percent to 12.7 tons from 14.6 tons a year earlier.
"The gold market is not only driven by expectations of the Federal Reserve, inflation data, or safe asset flows," said Azzam.
"Structural buyers remain active, and those buyers are thinking in terms of years, not weeks," he said.
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