African central banks are increasingly investing in gold as a safeguard against economic and geopolitical uncertainties. This shift aims to diversify their financial assets and stabilize local currencies amid global volatility.
Gold prices have surged from $1,900 per ounce in September 2023 to $2,500 a year later. Despite the high costs, experts anticipate a continued rise in demand for gold over the coming months due to its status as a safe-haven asset.
Carlos Lopes, a professor at the Nelson Mandela School of Public Governance, explains that the move towards gold is driven by low returns on other investments and ongoing inflation. With major banks also investing in gold for protection, it has become a preferred choice for central banks looking to secure their financial stability.
Additionally, African gold production has increased by 60% since 2010, surpassing the global growth rate of 26%. In a notable development, Zimbabwe introduced a gold-backed currency in 2022 to tackle inflation and stabilize its foreign exchange rates, demonstrating the growing role of gold in regional economic strategies.
Ghana and Uganda are significantly increasing their purchases of gold from artisanal miners as a strategy to bolster their dwindling foreign currency reserves. This move is part of a broader effort to stabilize their economies amid global financial uncertainties.
Ghana, which stands as Africa’s leading gold producer, is exploring innovative approaches to manage its economic pressures. One such strategy involves purchasing oil from other countries and paying with gold. This method aims to ease the burden on the Ghanaian cedi and tackle the rising costs of fuel, reflecting a novel approach to economic management in response to currency challenges.
Economic experts argue that while gold is a valuable asset for its long-term stability and crisis performance, it is not a panacea for the complex economic issues faced by some African nations. Instead, gold is recommended as a strategic asset to diversify financial portfolios rather than as a sole solution to economic problems.
Bright Oppong Afum, a senior lecturer at the University of Mines and Technology in Ghana, highlights the strategic shift by African nations to reduce their dependency on the global financial system. He explains, “African countries are taking steps to protect themselves from the potentially devastating effects of international sanctions. By decreasing their reliance on external economies, they aim to create a buffer against economic instability.”
Despite the recognition of gold’s importance, many individuals in Africa sell the precious metal to meet immediate financial needs. This often leads to exploitation by opportunistic buyers who take advantage of the situation.
To address some of these economic pressures, the African Continental Free Trade Area has introduced the Pan-African Payment and Settlement System. This system enables countries to conduct trade in local currencies rather than relying on international currencies. Experts believe that such regional payment systems could help alleviate economic strain and potentially reduce the heavy reliance on gold as a financial safeguard.