Gold’s safe-haven appeal is surging again. Rebekah McMillan, Associate Portfolio Manager at Neuberger, examines how record central-bank buying—led by China, Turkey and India—alongside fiscal strain and tighter supply, is reinforcing gold’s role as a neutral, liquid hedge amid volatile yields and shifting global reserves.
Could you specify the scale of recent purchases relative to the global gold market volume – and which regions are particularly dominant in this trend?
Central banks have sustained record net purchases of over a thousand tonnes in each of 2022, 2023 and 2024, more than double the average pace of the prior decade. That buying now accounts for 20% or so of annual physical demand, which has supported price rises despite the market’s daily liquidity remaining vast. Geographically, the structural demand has shifted decisively eastward: China has been the largest buyer, adding persistently to gold reserves, as have Turkey and India amongst other regions. The sustained purchasing has been driven primarily to diversify reserves, reduce reliance on the US dollar, and hedge geopolitical and financial risks. Gold’s lack of default risk, high liquidity, and ‘neutral’ status among reserve assets make it attractive for official portfolios, especially after Russia’s 2022 sanctions highlighted vulnerabilities in dollar‑centric reserves.
How does the shift towards fiscal dominance and the resulting pressure on the long end of global yield curves influence the relative attractiveness of gold compared to government bonds as a ‘safe haven’?
The shift toward fiscal dominance, where persistent deficits and heavy sovereign issuance shape monetary conditions, is lifting term premia and destabilizing the long end of yield curves, diminishing the previously ‘safe‑haven’ qualities of government bonds by exposing investors to greater duration/ interest rate risk and mark‑to‑market volatility.
Despite higher real yields, investors have been turning to gold as a ‘safe haven’ and real store of value in the face of inflation uncertainty and policy credibility, gold’s global neutrality and lack of default risk enhance its relative appeal as a hedge against fiscal and geopolitical stress.
In a tight physical gold market, where do you currently see the most significant bottlenecks on the supply side – and for how long could this scarcity structurally support prices?
Physical tightness in gold is being reinforced by supply‑side frictions that are slow to resolve. Mine output growth is marginal, with declining grades, permitting and ESG constraints, implying multi‑year lead times for any meaningful capacity additions. Sanctions‑driven rerouting, pertaining to Russia have added frictions and costs to physical flows, contributing to regional premiums. Taken together, these bottlenecks can underpin a scarcity premium for several years. It is important to highlight though, that the dominant price driver is still the broader macro picture and demand, the inelasticity of supply and market tightness just helps set the floor.
What role do other commodities play as diversifiers in practice?
As discussed, gold is the largest holding in our commodities strategy, near 18% of the total fund. Broad commodities, including gold, tend to do better when inflation surprises to the upside though importantly each commodity market has unique characteristics, fundamental and technical drivers. Gold does better in more defensive environments – growth weakening – while cyclical commodities can be expected to do better in higher growth environments. We therefore like to utilize a broad basket of commodities, which is dynamically managed, and scarcity rather than production weighted, for a strategic exposure which diversifies across different macroeconomic regimes.
Which indicators guide your decisions to increase or reduce your long position (of around 1.5 percent) – and how high could the tactical allocation rise in extreme scenarios?
On the multi-asset team, we are scaling risk on macro, flow and price signals. For our gold position, US real yields is an important anchor, and we are closely watching term premia and curve steepening which has aided Golds recent breakout. Over the last 18 months we have added incrementally to positioning on small sell-offs as financial conditions or inflation concerns ease. 1.5% represents a significant overweight, particularly given our constructive view on risk assets, though we could go acutely higher in a risk-off scenario.
