As global central banks diversify their exposure to U.S. assets, the rising allocation to gold raises questions about the sensitivity of their reserves to gold prices and the consequent policy ramifications. While central banks are collectively on track to buy 1,000 metric tons for a fourth year in a row, we find that for most emerging markets, surging gold prices—not increased physical holdings—have been the main driver of rising gold reserves.1 Against this backdrop, we also observe that in the event of a sudden, sharp decline in gold prices, EM central bank reserve coverage and liquidity should still offer sufficient buffers against external risks.
Central bank reserve statistics point to growing gold allocations in recent quarters as the institutions have accumulated over 1,000t of gold in each of the last three years, up from the 400-500t average over the preceding decade.2 According to both market narratives and surveys, gold reserves are expected to increase over the next 12 months as central banks indicate a desire to allocate more to gold given growing concerns over trade, geopolitical risks, and the role of the U.S. dollar in the global financial system. This would increase their exposure to price drops if contextual factors (e.g., trade concerns) dissipate.
However, our analysis pours some cold water on the idea of a central bank gold rush. For most emerging market central banks that we analyzed, growth in reported gold holdings between 2022 and 2024 was predominantly the result of price increases as opposed to new purchases.
For context, Figure 1 illustrates the change in foreign assets, including gold, for 40 emerging market counties between 2022-2024 and the resulting liquidity ratio.3
Figure 1
Foreign Assets and Liquidity Ratios (%)
Source: Haver, Bloomberg, PGIM. As of July 2025.
Central banks usually hold gold as an inflation hedge or for diversification reasons. Uncertainty about the global trade framework and sanctions have also grown more salient for some central banks. Statistics on gold holdings are not readily available for some countries. However, anecdotal evidence suggests that the Russian and Chinese central banks have been the most intense buyers as they sought to diversify away from dollar assets for both economic and geopolitical reasons. For other EMs, aside from idiosyncratic issues, geopolitical factors might play a smaller role, and they might prefer more liquid assets (Figure 2).
Figure 2
Changes in Foreign Assets (%)
Source: Haver, Bloomberg, PGIM. As of July 2025.
Quantity versus Price Effects
To distinguish between the valuation effect and the change in physical bullion holdings, we first carried out a statistical analysis of the increase in gold reserves from end-2022 to end-2024. Figure 3 shows the respective contributions of changes in gold quantity and price to percentage changes in the value of gold holdings.
Figure 3
Gold Holdings Split Between Quantity and Price Effects (%)
Source: Haver, PGIM. As of July 2025.
As observed, almost all countries analysed grew their gold reserves. However, it was the change in gold price (not bullion accumulation) that predominantly drove this increase. Among those analysed, Bolivia, Kazakhstan, Philippines, and Suriname reduced their bullion holdings but, due to the price effect, the value of gold holdings only fell for Bolivia.
The Impact of a Gold Price Shock
As central banks increasingly look to gold as a source of diversification, stability, and hedge against inflation, we find that rising prices have been the main driver of higher gold holdings among EM central banks. This raises questions about how a steep drop in gold prices may impact EM central bank reserves. This leads us to our second conclusion, which is that it would take an extreme price movement to negatively affect EM central bank liquidity and their ability to use reserves to reduce currency or external funding risks.
To determine how vulnerable these EM countries are to a sharp drop in gold prices, we conducted a comparative static analysis on end-2024 figures by simulating a 30% and 60% drop in the price of gold (Figure 4).
Figure 4
Impact of a Gold Price Shock on Liquidity
Source: Haver, Bloomberg, PGIM. As of July 2025.
We then extended our stress analysis to import coverage, i.e. to the number of months of imports covered by a central bank’s foreign assets. This ratio is usually calculated using liquid FX reserves; hence, our ratios are higher than in, say, IMF reports (since foreign assets are higher than its subset, FX reserves; Figure 5).
Figure 5
Import Coverage Ratio During Negative Gold Shock
Source: Haver, Bloomberg, PGIM. As of July 2025.
The key finding of this stylized exercise is that even under a more severe, negative gold price scenario, many central banks with the largest absolute declines in liquidity still maintain comfortable ratios on a relative basis. However, we must caveat our results as this calculation assumes central banks can sell their gold in a crisis and the value of other reserve assets does not decline meaningfully. EM central banks could resort to accumulating additional reserves through the usual means, including, but not limited to, absorbing FX inflows related to trade and investments or absorbing proceeds of FX issuance or emergency financing.
1 Reuters, “Central Banks on Track for 4th year of Massive Gold Purchases, Metals Focus Says,” June 5, 2025.
2 World Gold Council, “Central Bank Gold Reserves Survey 2025,” June 15, 2025.
3 We define liquidity ratio as the ratio between a central bank’s foreign assets and short-term external debt redemptions plus the financing needed to cover the current account deficit.
Source(s) of data (unless otherwise noted): PGIM Fixed Income, as of July 2025.
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