Unsatiable demand

Gold in USD is up 28% year-to-date and nearly 95% over the past five years — a remarkable run for an asset that generates no cash flows. A key driver behind this rally: central banks. As the chart below shows, gold has now overtaken the euro as the second-largest component of global official reserves.

The rationale is clear. In an increasingly polarized and uncertain world, central banks are actively diversifying away from the US dollar. Gold is seen as a neutral reserve asset — immune to sanctions, geopolitics, and credit risk — and also as a long-term hedge against inflation.

According to estimates by Goldman Sachs (noting that part of the buying remains opaque), central banks are currently purchasing physical gold at twice the monthly pace seen in the 2010s.

While gold is difficult to value and produces no income, its appeal is undeniable. Given the structural shifts underway, we believe this trend is unlikely to reverse anytime soon.