The International Monetary Fund studied gold purchase trends of 144 countries and looked at what is driving central banks' massive gold purchases.

In 1924, economist John Maynard Keynes described the gold standard as a «barbarous relic,» declaring both the usefulness and value of gold as obsolete.

Fast forward to 2022, central banks bought more gold than they had done in over half a century, splashing out on 1,136 tons of it. the most since 1967, as finews.com reported. The amount was also the second-highest value since 1950 and an increase of more than 150 percent compared over 2021.

In the four decades leading up to the global financial crisis, central banks were focused on reducing their gold holdings. This all changed in 2008, the point when the hoarding began.

Emerging markets 

In its study, the IMF lists the increased need to hedge against economic and geopolitical risks, as one of the factors prompting central banks to increase their gold reserves.  

Central banks in emerging markets in particular are increasing the share of foreign reserves held in gold. The authors identify 14 «active diversifiers.» These are countries that have bought gold and increased their share of total reserves by at least five percentage points over the past two decades.

The active gold diversifiers are exclusively emerging markets. Countries such as Kazakhstan, Belarus, Turkey, Uzbekistan, Hungary, Iraq, Argentina, and Qatar, for example, have bought at least 1 million troy ounces of gold since the end of 1999.

Sanction risk

The decision by the G7 countries to freeze Russia's foreign exchange reserves in response to the invasion of Ukraine may also have contributed to emerging markets holding a greater share of their reserves in a form that is better protected from sanctions.

Financial sanctions imposed simultaneously by the United States, the United Kingdom, the European Union, and Japan have led to an increase in the volume and value of gold reserves, according to the study.

«There is evidence that multilateral sanctions imposed by these and other countries have a stronger impact on the share of reserves held in gold than unilateral sanctions,» the study says, adding that the latter left room for the reallocation of reserves into currencies of other countries that did not impose sanctions.