Why Do Central Banks Buy Gold When It Pays No Interest?

Gold pays no interest and produces no cash flow. So why are the institutions responsible for protecting a country's money buying so much of it?

Gold has a strange problem.

Put money in a bank and you can earn interest.

Buy a U.S. Treasury bond and you can earn interest.

Buy a corporate bond and you can earn interest.

But gold?

Gold pays nothing.

Put one kilogram of gold in a vault for ten years and you will still have one kilogram of gold.

Yet central banks — some of the world's most sophisticated financial institutions — have been buying enormous amounts of it.

Over the past four years, central banks have purchased roughly:

1,000 tonnes of gold per year

on average.

During the previous decade, the average was closer to 500 tonnes per year.

So why would central banks choose an asset that pays no interest?

Why Do Central Banks Own Assets at All?

Countries need emergency reserves too.

A country may need foreign currency to pay for imports.

Its own currency may suddenly weaken.

A financial crisis may hit.

International markets may become unstable.

That's why central banks hold reserve assets.

These can include:

U.S. dollars

U.S. Treasury securities

Euros

Foreign government bonds

and

Gold

A central bank isn't simply trying to earn the highest possible return.

It also needs assets that can preserve value, provide liquidity and reduce dependence on any single part of the financial system.

That's where gold becomes interesting.

Gold and U.S. Treasuries Are Fundamentally Different

Imagine a central bank owns a U.S. Treasury bond.

At its core, that bond represents a promise:

The U.S. government promises to repay the money.

A bank deposit works in a similar way.

The bank owes you the money.

A corporate bond is also a promise.

The company owes you the money.

Gold is different.

If a central bank owns a physical gold bar, nobody has to repay it for that gold bar to exist.

Gold is nobody else's liability.


That simple difference is one of the most important reasons gold has remained a reserve asset for centuries.

The International Monetary Fund notes that gold carries no credit risk.

There is no company, bank or government that has to remain solvent for a physical gold bar itself to continue existing.

Why Does That Matter?

Most of the time, it may not matter very much.

Financial systems function.

Governments repay their bonds.

Banks process transactions.

Currencies move around the world.

But central banks also prepare for unusual situations.

Financial crises.

Wars.

Geopolitical conflicts.

Sanctions.

Currency instability.

Some foreign reserves are held through overseas financial institutions and depend on international financial infrastructure.

Under extreme circumstances, access to certain financial assets can potentially become restricted.

Physical gold held directly by a central bank has a different characteristic.

It does not depend on another government promising to repay it.

The IMF has noted that gold can potentially provide protection against some sanctions-related risks.

That doesn't make gold immune to every political or financial problem.

But it gives central banks another form of diversification.

Central Banks Really Are Buying More Gold

This isn't only a theoretical argument.

The World Gold Council surveyed 76 central banks and reserve managers in 2026.

It found that:

89%

expected global central bank gold reserves to increase over the following 12 months.

Even more interesting:

45%

said their own central bank expected to increase its gold holdings.

That was the highest share recorded in the survey's history.

Central banks aren't all doing the same thing.

Some buy.

Some sell.

Some barely change their reserves.

But collectively, gold buying has remained unusually strong compared with the previous decade.

What Do Central Banks Like About Gold?

There isn't one answer.

Central banks cite several reasons for holding it.

Gold can perform differently during periods of crisis.

It has a long history as a store of value.

It can diversify a reserve portfolio.

It can provide some protection against inflation and currency risk.

And it can reduce dependence on other financial assets.

Think of it like this:

A central bank may believe U.S. Treasuries are excellent reserve assets.

That doesn't necessarily mean it wants all of its reserves in U.S. Treasuries.

Diversification isn't the same thing as rejection.

And that distinction matters.

Are Central Banks Abandoning the Dollar?

This is where the story often becomes exaggerated.

You may see claims such as:

"Central banks are dumping the dollar for gold."

The reality is much more complicated.

In the World Gold Council's 2026 survey, 74% of respondents expected the U.S. dollar's share of global reserves to decline over the next five years.

But:

A declining share is not the same as abandoning the dollar.

The U.S. dollar remains central to the global financial system.

It is deeply embedded in international trade, debt markets, banking and foreign-exchange transactions.

Central banks buying more gold doesn't mean they are converting all their dollars into gold bars.

A more accurate description is that many countries appear interested in diversifying their reserves.

Gold is one part of that process.

There's Another Important Catch

Suppose you read that gold now represents a much larger share of central bank reserves.

It would be easy to conclude:

Central banks must have bought an enormous amount of additional gold.

But that isn't necessarily true.

There's another reason the value of their gold reserves can increase:

The price of gold itself rises.

Imagine a central bank owns 100 tonnes of gold.

If the price of gold doubles, the market value of those reserves doubles even if the central bank buys zero additional tonnes.

The IMF has highlighted this valuation effect as an important reason gold's share of global reserve assets has increased.

So we need to separate two things:

Central banks buying more gold

and

Existing gold becoming more valuable.

Both can increase gold's share of reserves.

They aren't the same thing.

Gold Has Serious Disadvantages Too

If gold were the perfect reserve asset, central banks wouldn't need anything else.

It isn't.

The most obvious disadvantage is the question we started with:

Gold pays no interest.

U.S. Treasury securities can generate income.

Gold doesn't.

Gold prices can also move sharply.

The IMF notes that gold carries significant market-price risk and that its safe-haven and diversification properties aren't identical in every situation.

Central banks also need highly liquid assets that can be deployed quickly in foreign-exchange markets.

So the real choice isn't:

Gold OR Dollars

It is closer to:

Gold AND Dollars AND Bonds AND Other Reserve Assets


Different assets serve different purposes.

Are Central Banks Still Buying Today?

Yes, although purchases aren't constant.

There are months when central banks collectively buy more gold and occasional periods when reported activity turns negative.

In the second quarter of 2026, however, central bank net purchases reached approximately:

289 tonnes

Central bank demand therefore remains an important structural part of the global gold market.

And surveys suggest many reserve managers expect the trend to continue.

Does This Mean Gold Prices Will Keep Rising?

No.

That's another important distinction.

Central banks are buying gold ≠ gold prices must rise.

Gold prices respond to many forces.

Interest rates.

The U.S. dollar.

Inflation expectations.

Geopolitical risk.

ETF flows.

Retail and institutional demand.

Jewelry demand.

And central bank purchases.

Those forces can push in different directions.

Gold can also be highly volatile.

So understanding why central banks buy gold is very different from predicting whether gold is a good investment at today's price.

This isn't a case for buying gold.

It's an attempt to understand why governments hold it.

The Value of an Asset That Pays Nothing

Gold doesn't produce earnings.

It doesn't pay dividends.

It doesn't pay interest.

Yet central banks continue to hold it — and many have been buying more.

Why?

Because maximizing returns isn't the only job of a reserve portfolio.

Central banks also ask different questions.

Will this asset still be useful during a crisis?

Does it diversify our other reserves?

Does someone else have to repay us?

What happens during geopolitical disruption?

That changes how gold looks.

Some assets exist to produce income.

Some provide liquidity.

And some can be valuable partly because they don't depend entirely on someone else's promise.

Gold pays no interest.

It produces no cash flow.

But a physical gold bar is not a promise from a company, a bank or another government to pay you later.

And sometimes that distinction matters.

Sometimes the value of an asset is not what it pays you.

It's what it doesn't require someone else to promise you.

BEYOND THE OBVIOUS.


Sources

World Gold Council — 2026 Central Bank Gold Reserves Survey

https://www.gold.org/goldhub/research/central-bank-gold-reserves-survey-2026


International Monetary Fund — Gold as an International Reserve Asset

https://www.elibrary.imf.org/view/journals/068/2026/007/article-A001-en.xml


Reuters — Central Banks Spearhead Renewed Gold Rush

https://www.reuters.com/commentary/reuters-open-interest/central-banks-spearhead-renewed-gold-rush-2026-08-13/