Central Banks Diversify Gold Reserves Amid Political and Legal Risks

Central banks around the world are diversifying their gold reserves by storing them in various jurisdictions to reduce political and legal risks. According to a World Gold Council survey, the Bank of England is still the most widely used foreign custodian for central bank gold reserves, with 57% of responding banks storing some gold there.

The New York Fed comes in second at 14%, followed by the Bank for International Settlements in Switzerland and Banque de France. China is also emerging as an alternative custody center.

Goldman Sachs notes that London and New York remain popular due to their liquidity, allowing reserve managers to access markets quickly without needing to recertify gold bars. These centers also enable central banks to tap into dollar liquidity through swaps and earn income by leasing their holdings.

However, foreign storage carries risks such as frozen assets or restricted access, as seen in the 2018 dispute involving Venezuelan gold held at the Bank of England. To mitigate these risks, some central banks are opting for multiple foreign custodians to reduce reliance on a single country or legal system.