Central banks across several African nations are intensifying their gold purchases as part of a broader strategy to diversify financial portfolios and shield themselves from economic and geopolitical turbulence. This trend mirrors similar actions by emerging markets and developing economies (EMDEs) globally.
According to a recent VOA report, countries like Ghana and Uganda are acquiring gold from artisanal miners to bolster their dwindling foreign currency reserves. Ghana, the continent’s largest gold producer, aims to use domestically mined gold to pay for oil imports, thus alleviating pressure on its currency and addressing high fuel prices.
Ghana’s mining sector is poised for expansion with the upcoming launch of the Cardinal Namdini mine in November. This greenfield project, operated by Cardinal Resources under Shandong Gold, is projected to produce over 350,000 ounces of gold annually, marking the first large-scale mine commission in over ten years.
Carlos Lopes, a professor at the Nelson Mandela School of Public Governance, emphasized that African central banks are increasingly turning to gold as a safeguard for their currencies amid rising inflation and low returns on other investments. “Gold remains a solid investment as major banks seek it for protection,” Lopes noted.
Gold prices have indeed surged in recent years. From just above $1,500 per ounce in early 2020, the price of gold has soared to over $2,500 per ounce, reflecting a substantial 69% increase.
The rise in African gold production has been notable. The World Gold Council reports that gold output on the continent has risen by 60% since 2010, significantly outpacing the global average growth rate of 26%. However, only a small fraction of this increased production has been acquired by African central banks, particularly in sub-Saharan Africa. For instance, the South African Reserve Bank holds 125.44 tons of gold, valued at $9.4 billion, constituting 15.13% of its total foreign reserves. Similarly, Mauritius holds 12.42 tons worth $930.5 million, or 11.36% of its reserves. In contrast, most other sub-Saharan nations hold less than 1% of their reserves in gold.
North Africa’s more economically integrated countries also show limited gold reserves. Egypt’s central bank possesses 126.57 tons valued at $9.5 billion, representing 21.43% of its total reserves, while Tunisia holds 6.84 tons worth $513 million, or 6.14%. Morocco, Libya, and Algeria do not hold significant gold reserves.
Bright Oppong Afum, a senior lecturer at the University of Mines and Technology in Ghana, noted that African countries are leveraging gold to reduce dependence on the global financial system and mitigate the impact of potential sanctions. “Countries are strategically minimizing their reliance on external economies to avoid severe economic repercussions from sanctions,” Afum said.
Despite recognizing gold’s long-term value, Afum acknowledged that some Africans are compelled to sell gold to meet immediate needs, often at unfavorable terms. The World Gold Council advocates for maintaining gold reserves due to their long-term value, performance during crises, and effectiveness as a portfolio diversifier.