Gold and Central Banks: Why Do States Buy the Precious Metal?

For many central banks, gold is a strategic part of their currency reserves. In recent years, global demand for the precious metal has risen significantly. This trend affects not only individual countries' gold reserves but also the international gold markets. Especially after economic and geopolitical crises, more and more central banks have started to deliberately supplement their reserves by buying gold.

In this guide, you’ll learn why central banks buy gold, how these purchases have evolved and which countries are particularly active. You’ll also get an overview of how central banks’ behaviour impacts the gold price and the strategic importance gold is gaining for countries worldwide.

• Hedging: Central banks such as the Deutsche Bundesbank buy gold to diversify their currency reserves and protect against inflation.

• Gold holdings: According to the World Gold Council (WGC), central bank demand for gold has risen sharply since the 2008 financial crisis, with countries like China, Russia and Turkiye among the most active buyers.

• Reasons: Central banks buy gold to reduce their dependence on the US dollar and respond to international sanctions.

• Effects: Central bank gold purchases have a long-term impact on the global gold price and market.

Why do central banks buy or hold gold?

Gold reserves serve a variety of functions for central banks that go far beyond the intrinsic material value of the metal. Reasons for central bank gold purchases may include:

Hedging against geopolitical uncertainties

Gold is considered a crisis-resistant precious metal and retains its relevance even during politically unstable periods. Central banks hold gold reserves to have a reliable asset independent of any single currency in times of international tensions, trade conflicts or military confrontations. Because gold can be traded globally and cannot be frozen by states, it offers reliable protection against geopolitical risks.

Diversification of currency reserves

Alongside foreign currencies like the US dollar or the euro, central banks also hold gold to broaden their currency reserves. This diversification aims to reduce the risk associated with over-reliance on individual currencies or economic zones. States buy gold as a stable-value reserve without issuer risk.

Protection against inflation

The relationship between inflation and gold significantly influences the reserve policies of many central banks. When the purchasing power of fiat currencies declines due to rising consumer prices, gold remains stable in value. That’s why central banks rely on gold reserves to secure their currency reserves during inflation-prone periods.

Gold purchases as a strategy against dedollarisation and sanctions

Some central banks are deliberately buying gold to reduce their dependence on the US dollar. This so-called "dedollarisation" is intended to prevent reserves from being frozen or blocked by international sanctions. Gold can be stored and traded independently of Western-dominated financial systems, which is why it plays a strategic role in politically sensitive countries dealing with external economic pressure.

Historical role

Gold has a long tradition as a monetary asset and for centuries served as the foundation of many currency systems. Until the 1970s, international payments were closely tied to the gold standard. Even after that ended, gold remained part of many central banks’ currency reserves. The history of the gold price shows that the metal gains particular relevance in times of crisis, which is why countries still buy gold today to secure the long-term stability of their reserves.

Currency stability and confidence

Gold reserves are seen as a visible signal of economic soundness. If central banks hold sufficient gold, this can boost confidence in the stability of the national currency – particularly in countries with unstable inflation or volatile monetary policy. A central bank buys gold not only as a store of value but also as a means to back the monetary foundation.

How have central banks’ global gold reserves developed?

Gold is a strategic reserve for many central banks, especially in times of economic and political uncertainty. The development of global gold reserves shows how confidence in the precious metal has changed over the years. The following figures are based on data from the World Gold Council (WGC), which regularly analyses the gold reserves of central banks worldwide.

A historical perspective clearly shows the global rise in central bank gold reserves since 2008. This trend is no coincidence: events such as the 2008 global financial crisis, the euro crisis, the war in Ukraine and increasing pressure from sanctions have led many central banks to deliberately purchase gold to make their currency reserves more resilient in times of crisis.

This trend is also reflected in current surveys. According to the World Gold Council’s “Central Bank Gold Reserves Survey 2025”, 43% of the central banks surveyed plan to increase their gold holdings in the coming year. 76% expect the share of gold in their currency reserves to rise over the next five years. Particularly relevant: gold is no longer held passively. 44% of central banks now actively manage their holdings to respond specifically to geopolitical and economic risks.

Which countries hold the most gold – and why?

As part of their currency reserves, many central banks around the world rely on gold. The following overview shows the top 10 countries by gold reserves in the fourth quarter of 2024, measured in tonnes.

• USA: 8,133.46 tonnes of gold reserves

• Germany: 3,351.53 tonnes of gold reserves

• Italy: 2,451.84 tonnes of gold reserves

• France: 2,437.00 tonnes of gold reserves

• Russia: 2,332.74 tonnes of gold reserves

• China: 2,279.56 tonnes of gold reserves

• Switzerland: 1,039.94 tonnes of gold reserves

• India: 876.18 tonnes of gold reserves

• Japan: 845.97 tonnes of gold reserves

• Netherlands: 612.45 tonnes of gold reserves

Note on data: Official figures on central banks’ gold reserves are subject to uncertainties. Some countries do not publish their figures regularly or only with delay. The WGC compiles data based on national reports and updates them quarterly. For Q1 2025, current figures for some countries are not yet available (as of 25 June 2025). Therefore, this overview is based on the most recent data from Q4 2024.

Some countries – such as the USA, Germany or Italy – have historically held large gold reserves that have remained largely stable for decades. For them, gold is a constant element of monetary and currency policy. Other countries, however, have significantly increased their gold purchases in recent years. This development is particularly evident in China, Russia and Turkiye, which have increasingly turned to gold for different political and economic reasons.

China’s gold reserves: big moves with long pauses

China is now one of the world’s largest holders of gold reserves – but its accumulation hasn’t been continuous, rather it has happened in distinct phases. Instead of regular purchases, the Chinese central bank appears to use gold as a strategic reserve tool to respond to geopolitical and economic developments. 

The proportion of gold in China’s currency reserves has risen significantly in recent years. The goal is to reduce dependence on the US dollar, cushion economic risks and strengthen its own currency in an increasingly geopolitically influenced environment.

Russia’s gold holdings – buying gold during geopolitical tensions

Russia is among the countries with the strongest increase in gold reserves over the past two decades. The Russian central bank has significantly expanded its gold holdings, particularly since the 2008 global financial crisis.

Russia’s central bank uses the precious metal to diversify its reserves and reduce its dependence on the US dollar. The deliberate shift away from US dollar-denominated assets towards gold is part of a dedollarisation strategy that has become increasingly important for Russia in light of Western sanctions.

The high proportion of gold in Russia’s currency reserves is seen as a targeted response to economic risks and political tensions. According to the WGC, Russia has for years been one of the most active state buyers with a notable impact on global demand and the long-term gold price.

Turkiye: sharp increase in gold reserves

Turkiye has massively increased its gold holdings in recent years, making it one of the most active central banks in expanding its currency reserves. 

While gold reserves remained steady at around 116 tonnes for several years, a marked increase followed. Since 2017 in particular, there has been a strong rise in net purchases. Turkiye has become one of the largest net buyers among emerging markets in just a few years. This increase may be linked to economic uncertainty and growing mistrust of fiat currencies.

How does it affect the gold price when central banks buy gold?

Central banks are seen as important players in the international gold market. Their behaviour influences not only the supply and demand for the precious metal but also has direct effects on the gold price. These effects can be divided into three areas:

1. Increased demand through strategic gold purchases
   When central banks buy gold, global demand for the precious metal rises noticeably. Many market participants interpret such purchases by central banks as a signal of confidence, especially in times of economic uncertainty. This reinforces gold’s role as a “safe haven” and can lead to further investment. Especially in crisis years, rising gold reserves and price increases often go hand in hand.

2. Reduced supply on the open market
   A large proportion of gold bought by central banks is held long-term and effectively disappears from the market. So when a central bank buys gold, available supply decreases. Combined with rising demand, this can drive up prices. This effect becomes particularly clear when large countries such as China or Russia act as net buyers for years, regularly purchasing more gold than they sell.

3. Interest rate policy and gold’s appeal
   Another factor is the interest rate policy of central banks. When interest rates are low, traditional investments like government bonds become less attractive. Precious metals like silver and gold then gain appeal. Central banks also adjust their reserves during such periods and are more likely to buy gold, as seen after the 2008 financial crisis or during the 2020 pandemic.

Conclusion: gold reserves as a strategic tool for central banks

Central banks around the world use gold reserves to stabilise their currency reserves and cushion economic and geopolitical risks. Central bank gold purchases have increased significantly since the 2008 financial crisis, especially in countries like China, Russia or Turkiye.

This trend affects not only global demand but also has a long-term impact on the gold price – and with it, your decision on whether and how to invest in precious metals. By understanding central banks’ strategies, you can better grasp how gold is positioned within the international financial system.

Frequently asked questions about gold and central banks

How large are the gold reserves of the Deutsche Bundesbank?

The Deutsche Bundesbank currently holds around 3,351 tonnes of gold. Internationally, Germany ranks second behind the USA, making it the leading country in Europe.

The Bundesbank regularly emphasises in its reports that secure storage and repatriation of gold are central goals of its gold strategy. Most of the reserves are now stored in Frankfurt am Main, with portions still held at the Bank of England and the Federal Reserve Bank in New York. Unlike many other central banks, the Bundesbank publishes detailed reports on the distribution of its gold reserves on a regular basis.

Where and how do central banks buy gold?

Central banks typically buy gold over the counter, i.e. outside public exchanges. Purchases are often made directly through specialised banks or international institutions. Transactions are frequently kept confidential to avoid market reactions. Timing also plays a strategic role, especially in high-volume gold purchases by central banks such as China or Turkey.

In what form do central banks buy gold?

Central banks usually buy physical gold in the form of Good Delivery bars weighing 400 ounces (around 12.5 kilograms). These specifications meet international standards and are the common format for inclusion in state gold reserves. Some central banks store their gold abroad, such as at the Federal Reserve or the Bank of England.

Are central banks allowed to sell gold?

Yes, central banks are allowed to sell gold, but this happens rarely. In recent years, most countries have clearly taken on the role of buyers. When central banks do sell gold, it’s usually for practical reasons, such as restructuring their reserves. Overall, however, the trend remains clear: far more gold is being bought than sold worldwide.

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