Gold in the vault: More than a barbarous relic

“Gold is money. Everything else is credit.” — J. P. Morgan

Gold, once seen as a relic of the old monetary order, is quietly reclaiming a role in reserve management. Last week, Nigeria’s Central Bank confirmed the purchase of locally sourced gold for the country’s foreign reserves. The move may seem small, but it reflects a broader transformation in global reserve management.

For much of the late twentieth century, gold faded from the center of the international monetary system. After the Bretton Woods system collapsed in the early 1970s, currencies floated freely. Central banks began to rely on foreign exchange reserves: primarily U.S. dollars, euros, and government securities. These reserves were used to manage liquidity, stabilize exchange rates, and insure against external shocks. Gold stayed in central bank vaults as a legacy asset. It was not an active policy tool.

Over the past decade, that perception has shifted. Central banks in advanced and emerging economies have accelerated gold purchases, making gold one of the fastest-growing reserve assets. In 2022 and 2023, official gold purchases reached multi-decade highs. This trend has continued through 2024 and 2025.

Geopolitics, Monetary Sovereignty, and Reserve Diversification

At its core, central bank reserve management is about risk diversification and liquidity insurance. Countries hold reserves to meet external obligations, stabilize their currency, and maintain confidence during financial stress. Currency reserves are subject to interest-rate risk, exchange-rate volatility, and geopolitical exposure. Traditionally, reserves have consisted mostly of highly liquid assets, such as foreign currencies and Treasury securities. But relying on a few reserve currencies creates vulnerabilities. As Toba Beta said, “Never trust money more than gold.” Gold offers a hedge against these risks.

Gold differs from traditional reserve assets. As inflation expectations rise or real yields fall, gold’s value as a store of value grows. Gold has no counterparty risk and is not linked to any country’s fiscal or monetary policies. During instability or inflation, it often appreciates, providing a hedge when other reserve assets decline. The post-pandemic inflation surge reinforces this pattern. Rapid rises in inflation and rates triggered major volatility in government bond markets, which dominate reserve portfolios. For central banks, this shows that even the safest assets are subject to market risk.

The Emerging Market Gold Rush

The chart illustrates a key trend in global reserve management: emerging markets are increasing gold holdings as part of diversification strategies, but the balance between absolute holdings and portfolio share varies widely by a country’s foreign exchange reserves and strategic reserve objectives.

Sources: World Gold Council; Mosope Arubayi

For many emerging economies, increasing gold reserves is not only a financial decision but a strategic one. While advanced economies historically hold the largest gold reserves, recent accumulation has been driven primarily by emerging markets. The rise in geopolitics has accelerated the shift toward gold. Over the past decade, financial sanctions and asset freezes have shown that reserve assets held in foreign jurisdictions can become politically exposed. Gold offers something unique in this environment: monetary sovereignty. Unlike foreign securities held through international custodians, gold stored domestically remains under the direct control of the central bank.

Although China holds the largest volume among emerging markets, gold accounts for only a small share of its reserves, given its massive foreign exchange stockpile. By contrast, countries such as Turkey and Poland have deliberately increased gold’s share to double-digit levels to diversify away from currency concentration risk.

Africa: From Gold Mines to Central Bank Vaults

Africa has a unique role in the global gold system. It is both a potential holder of gold reserves and one of the largest producers globally. South Africa, Ghana, Mali, and Sudan account for a large share of production. Some African central banks now integrate gold into their reserves. Ghana, for example, buys gold directly from domestic miners to support reserves and local industry. Nigeria’s gold holdings remain small compared to those of several African peers. This suggests significant room to diversify.

Gold could strengthen the resilience of Nigeria’s foreign reserve portfolio. The Central Bank of Nigeria manages reserves of about $50bn. These are mostly foreign securities, currency deposits, and IMF assets. Nigeria’s reserves depend heavily on oil revenues, so reserves rise and fall with crude prices tracked by OPEC. Gold can hedge against these commodity cycles and market volatility.

Secondly, gold can reinforce confidence in exchange rates. Nigeria has faced currency pressure, and visible diversification of reserves can strengthen investor confidence in the naira. Gold also provides structural diversification, adding a real asset with risk characteristics that differ from bonds or foreign currencies.

Nigeria also enjoys an advantage many countries lack: domestic gold deposits. Several states have commercially viable gold reserves. Government initiatives to formalize artisanal mining could help Nigeria follow Ghana’s model. There, domestic gold production contributes directly to reserve accumulation. This strategy would turn natural resource wealth into strategic financial assets.

A Strategic Complement — Not a Replacement

Gold will remain a strategic complement in reserve portfolios. The renewed accumulation of gold by central banks signals a significant shift in global finance. Policymakers are building extra monetary insurance into reserves amid inflation volatility, geopolitical tensions, and shifting alliances.

But gold will not replace traditional reserve assets. It may have enduring appeal due to scarcity, durability, and universal acceptability. Still, modern central banking relies on liquid securities markets and foreign currency deposits. For Nigeria—and for Africa more broadly—the opportunity is clear. African economies, as both producers and potential holders of gold, sit at the intersection of natural resource wealth and monetary strategy.