Emerging African Nations Bolster Gold Reserves Amid Economic Instability

An increasing number of African nations are joining the ranks of emerging markets and developing economies in amassing gold reserves as a strategy to diversify financial portfolios and shield themselves from economic and geopolitical uncertainties.

Recent reports indicate that countries such as Ghana and Uganda are purchasing gold from small-scale miners to strengthen their dwindling foreign currency reserves. As Africa’s leading gold producer, Ghana primarily extracts gold through multinational companies. However, to alleviate the pressure on its local currency and manage rising fuel prices, the country plans to utilise domestically sourced gold for oil purchases from abroad.

In a significant development for Ghana’s mining sector, plans have been announced to commence the first large-scale greenfield mining project in over a decade. The new mine, expected to produce more than 350,000 ounces annually, will bolster local production capabilities and the economy.

The trend of increasing gold purchases by African central banks is primarily motivated by the need to stabilise local currencies amid rising inflation and economic challenges. The rising price of gold has made it an attractive investment, particularly as central banks globally look to gold for protection against economic fluctuations.

In recent years, gold prices have seen remarkable increases, with the price per ounce soaring from just above $1,500 in early 2020 to over $2,500, marking a significant gain. The continent’s gold production has also surged, with output increasing by 60% since 2010, far exceeding the global average of 26%. However, a significant portion of this production has not yet reached the central banks of African nations, particularly in sub-Saharan Africa.

While the South African Reserve Bank holds substantial gold reserves, representing a significant portion of its total foreign currency reserves, most sub-Saharan countries have minimal or no gold holdings at all. Only a couple of North African countries, like Egypt and Tunisia, have notable gold reserves, whereas nations like Morocco, Libya, and Algeria lack any gold holdings.

Many African nations are actively seeking to reduce their dependence on the global financial system. The potential impacts of sanctions pose a significant threat, prompting these nations to strategically lessen their reliance on external forces. Despite recognising the long-term value of gold, some individuals in these countries often sell their gold to meet immediate financial needs, leading to exploitation by opportunistic buyers.

The emphasis on maintaining gold reserves stems from its long-term value, resilience during crises, and its established role as an effective portfolio diversifier.