Safe haven assets, gold replaces the dollar for central banks and sovereign wealth funds

The dollar reared its head again, gold on the other hand struggled to take a definitive direction and even closed with a negative balance. The markets' response during the most tense week on the financial markets in probably the last four years appears surprising in some respects, because it seems to be travelling in precisely the opposite direction to what has been observed in recent times. The next few sessions, starting today, will tell whether the momentum among investors (who at the same time significantly penalised the main US currency-denominated instruments, such as Wall Street equities and Treasuries) will prove to be lasting, or whether theirs was a knee-jerk reaction and may once again leave room for the trends outlined above.

The latter seemed to be well established, especially among the investors who matter: those central banks and sovereign wealth funds that, according to a recent survey conducted by Invesco, are increasingly replacing dollar-denominated assets in their portfolios with gold in the current environment of increasing geopolitical fragmentation and unstable currency markets. The survey, which involved investors with $800 billion in assets under management and which anticipates the Invesco Global Sovereign Asset Management Study 2026 due to be published in the summer, confirms that in light of the new scenarios, the world's leading financial institutions are structurally rethinking the management of their reserves and increasing the role of the precious metal as a strategic hedge.

"Central banks are no longer asking themselves whether to hold gold, but how to value and store it," Rod Ringrow, head of official institutions at Invesco, states bluntly, identifying "a profound change in institutional thinking". The gradual depreciation of the dollar, at least until last week, is as already mentioned one of the main reasons behind the change, but certainly not the only one. The yellow metal is particularly suitable "for institutions whose currency flexibility is limited and which have to manage portfolios in times of great stress" and its return to the crest of the wave is also linked more or less explicitly to the theme of sanctions: "physical gold, particularly if held domestically," the study explains, "offers a degree of protection against the freezing of assets that other reserves cannot match"

Such characteristics have certainly taken on added importance in a context of growing geopolitical uncertainty, but the issue of valuations certainly does not appear secondary to investors' decisions either. Indeed, the price performance of the yellow metal has in many cases generated even among institutional investors the idea of having to move in order not to miss out on the upside again: "We included gold in our scenario for the first time, driven by the price trend," candidly admitted a European Central Bank participant in the Invesco survey.

As gold reserves have increased, the debate has gradually shifted to the operational side and in particular to how the precious metal is held. According to the study, physical gold still seems to be the preferred form of long-term ownership "based on sovereignty considerations and custody arrangements". At the same time, ETFs are also increasingly seen as a viable way to increase exposure efficiently, 'particularly when speed and flexibility are required'. The substance, however, does not change: "gold is no longer treated simply as a symbolic or hereditary asset, but actively managed as a strategic holding within reserve portfolios," Invesco concludes. And last week's apparent setback may, after all, represent a further step in the continuing progress of growth.