London: A survey of central banks and sovereign wealth funds conducted by Invesco on Monday revealed that more nations are returning their gold reserves as a hedge against the kind of sanctions the West has imposed on Russia.

Considering that higher inflation and geopolitical tensions aren't going away, sovereign money managers who lost a lot of money in the financial market collapse last year have "fundamentally" changed their strategies.

Invesco's annual Global Sovereign Asset Management Study included 57 central banks and 85 sovereign wealth funds, and more than 85% of them predicted higher inflation in the next ten years than in the previous ten.

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In that context, gold and emerging market bonds are viewed as safe bets, but the West's decision to freeze nearly half of Russia's $640 billion in gold and foreign exchange reserves in response to the invasion of Ukraine last year also seems to have precipitated a change.

A "substantial share" of central banks expressed concern about the precedent that had been set, according to the survey. Nearly 60% of respondents claimed that it had increased the appeal of gold, and 68 percent were keeping their reserves at home, up from 50% in 2020.

Anonymously cited central bank statement: "We did have it (gold) held in London... but now we've transferred it back to own country to hold as a safe haven asset and to keep it safe."

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That is a widely-held opinion, according to Rod Ringrow, head of official institutions at Invesco, who oversaw the report.

The catchphrase we've heard over the past year or so has been, "If it's my gold, I want it in my country," he said.

Some central banks are being encouraged to diversify away from the dollar by geopolitical concerns as well as opportunities in emerging markets.
Although most people still do not see any alternatives to the US dollar as the world's reserve currency, an increasing 7 percent now think that rising US debt is also bad for the dollar. From 29 percent last year, 18 percent now consider the Chinese yuan to be a possible rival.

Geopolitical tensions are viewed by nearly 80% of the 142 institutions polled as the biggest risk over the next ten years, while inflation is mentioned as a worry for the following year by 83% of respondents.

The most appealing asset class today is infrastructure, particularly when it comes to projects that involve the production of renewable energy.

India continues to rank among the top investment destinations for a second year in a row due to worries about China, while countries like Mexico, Indonesia, and Brazil are benefiting from the "near-shoring" trend, which sees businesses build factories close to their target markets. 

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In addition to China, Britain and Italy are viewed as being less desirable, and property is currently the least desirable private asset due to rising interest rates, work-from-home practises, and online shopping habits that emerged during the COVID-19 outbreak.

According to Ringrow, wealth funds that understood the dangers posed by inflated asset prices and were prepared to make significant portfolio adjustments outperformed their peers last year. Future events would be the same.
He stated that "the funds and the central banks are now trying to deal with higher inflation." It's a significant sea change.