Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How EM Central Banks Are Buying Gold at Record Pace
Transcript
- Lucas: So central banks in emerging markets are buying gold at a rate we haven't seen since the early 1970s—right before the Bretton Woods system collapsed. Luna: That is a very specific comparison. I know buying has been elevated, but 'since Bretton Woods' is a big claim. Lucas: It is. And the data backs it up. According to the World Gold Council, EM central banks collectively added over 1,000 tonnes of gold to their reserves in 2024 and 2025 combined. That's the highest two-year total since 1971. And the pace hasn't slowed in 2026. Luna: Let me guess—China is the biggest buyer. Lucas: China leads by volume. The People's Bank of China has added roughly 300 tonnes since it restarted reporting purchases in late 2022. Its official gold holdings now total over 2,200 tonnes. But relative to total reserves, it's still small—only about 5 percent of China's $3.2 trillion in reserves is gold. Luna: Right, because the US holds over 8,000 tonnes and it's about 70 percent of their reserves. So China has room to run. Lucas: Exactly. And the more interesting story is the breadth of buyers. Turkey has been the second-largest buyer, adding over 160 tonnes since 2022. Poland, India, Kazakhstan, Uzbekistan, even the Czech Republic. It's not just one or two outliers. Luna: What's driving this? I mean, gold doesn't pay interest. It costs money to store. Why are they accumulating it now? Lucas: The single biggest trigger was the freezing of Russian central bank assets in 2022. Around $300 billion of Russian reserves held in Western institutions were immobilized. For EM central banks, that was a wake-up call. If you hold a lot of US Treasuries or euros, there's now perceived geopolitical risk that those assets could be sanctioned. Luna: So it's a hedge against the weaponization of the dollar system. Lucas: Exactly. And it's not just about avoiding sanctions. It's also about portfolio diversification. The trade-weighted US dollar index is at 120.1 as of last week—that's near multi-decade highs. A strong dollar hurts EM currencies and makes dollar-denominated debt more expensive to service. Holding gold gives them an asset that isn't someone else's liability. Luna: That's a good line. Gold is the only reserve asset that is nobody else's promise. Lucas: Right. And there's a quieter, longer-term story here: de-dollarization of reserve composition. The IMF data shows the dollar's share of global allocated reserves has fallen from about 71 percent in 2000 to 58 percent in late 2025. Gold and other currencies—like the yuan—are taking up the slack. Luna: But the yuan itself is still tightly managed. It's been at 6.77 per dollar for weeks now, basically flat. So it's not like the yuan is replacing the dollar overnight. Gold is the more neutral store of value. Lucas: Precisely. And this has real consequences for EM bond markets. When central banks buy gold instead of US Treasuries, that reduces demand for Treasuries, which can nudge yields higher. But more importantly for our listeners, it also reduces the pool of dollars flowing into EM economies, which can put pressure on EM currencies. Luna: Speaking of which—you mentioned the trade-weighted dollar index at 120. That's actually up from 119.36 a couple weeks ago. So the dollar is still strengthening, even as central banks diversify. It's not a one-way trade. Lucas: No, it's not. And that's the nuance that gets lost in the breathless 'de-dollarization' headlines. The dollar remains dominant in trade invoicing, in derivatives, in global debt issuance. But at the margin, central banks are making a bet that gold will protect them from geopolitical tail risk. And they're doing it at a scale that matters. Luna: It also matters because gold prices have been hitting all-time highs in many EM currencies. For local investors, that's a big deal. But for central banks, the purchase price isn't the point—it's the strategic diversification. Lucas: Right. And we should note that this trend has bipartisan support in many countries. In Turkey, under Erdogan, gold buying predates the recent economic turbulence. In Poland, the central bank governor has explicitly said gold is a 'reserve of value in times of crisis.' So this isn't a flash in the pan. Luna: Before we go further—and this ties in perfectly—one thing that allows us to keep digging into these long-term structural trends is that this show is listener-supported. No ads, no sponsors, just a small group of listeners who chip in monthly through Buy Me a Coffee. It's at buy me a coffee dot com slash fexingo. If you've been following along and getting value from these deep dives, that's what keeps the lights on. Lucas: Yeah, it's a small thing that makes a big difference. And we don't interrupt the show with ads, ever. So if you want to support that model, you know where to find it. Luna: Alright, back to gold. Lucas, what does this mean for EM equities? Because we've seen EEM up 3.2 percent in the last five days, but China-specific ETFs like FXI are only up 1.8 percent. There's divergence. Lucas: Good catch. The gold buying is a slow-burn trend for currencies and bond markets, but for equities, the impact is indirect. When a central bank buys gold, it's signaling a degree of concern about the global reserve system. That can spook foreign investors into demanding a higher risk premium for EM equities. But in the short term, other factors dominate—like the SpaceX IPO euphoria or the Iran peace deal headlines. Luna: So the gold trend matters more for the next five years than the next five days. Lucas: Exactly. And if you look at the data, the countries that are buying gold most aggressively—China, Turkey, Poland, India—they're also the ones with the most ambitious industrial policy and the most to lose from dollar weaponization. It's a strategic alignment. Luna: What about Brazil? They haven't been big gold buyers recently, but they have been pushing for more use of local currencies in trade with China. Lucas: Brazil is interesting. They have a relatively small gold reserve—about 130 tonnes. But they've been active in the BRICS push for alternative payment systems. So they're taking a different route: currency swaps and local-currency settlement rather than gold accumulation. Luna: So there's a spectrum. Some central banks want the physical asset, some want currency alternatives, some want both. Lucas: Right. And the ones that want both are often the ones most exposed to US sanctions risk. China, Russia, Iran—they see gold as insurance. But even countries like Poland, which is firmly in the NATO camp, are buying. So it's not just adversaries of the US. Luna: That's a really important point. Poland bought over 20 tonnes in 2025 alone. They're a US ally. So this isn't anti-dollar activism. It's prudent portfolio management. Lucas: Exactly. And the World Gold Council survey of central banks shows that about 60 percent of EM central banks expect to increase their gold reserves in the next year. That's up from 40 percent a few years ago. So this trend has momentum. Luna: What about the cost? Gold is around $2,400 an ounce now. That's expensive for a central bank trying to buy hundreds of tonnes. Lucas: It is. But for these central banks, the cost is secondary to the strategic benefit. And remember, they're often buying from domestic production. China is the world's largest gold producer, so the PBOC can buy from local mines without affecting the global price as much. Turkey also has significant domestic production. Luna: That's a smart point. Domestic sourcing reduces market impact and supports local industry. Lucas: Right. And it's also worth noting that the IMF allows central banks to include gold in their reserves at market value, which gives them a boost on their balance sheets when gold prices rise. So there's a self-reinforcing element. Luna: So bottom line: EM central banks are buying gold at a historic pace, driven by geopolitical risk and a desire to diversify away from the dollar. It's a structural shift that will take years to play out, but it's already affecting reserve compositions and could have long-term implications for EM currencies and bond markets. Lucas: That's exactly right. And in the meantime, it makes gold a more interesting asset for EM investors to watch, not just as a commodity play but as a barometer of central bank sentiment. Luna: Thanks for digging into the data with us. If you want to support more episodes like this, check out buy me a coffee dot com slash fexingo. We'll be back next time with another angle on the emerging markets story. Lucas: See you then.