LBMA 2026: Central banks aren’t done with gold as geopolitical risks reshape reserves – Bundesbank’s Nagel

Speaking at the LBMA Global Precious Metals Conference in Sorrento, Italy, Nagel said the world has entered a new geopolitical environment that is reshaping inflation pressures, trade, investment, monetary policy and, increasingly, how central banks think about the safety of their reserves.

“The case for further diversification into gold remains significant,” he said.

Nagel noted that gold’s share of global central-bank reserves has risen sharply in recent years, climbing from around 14% in 2023 to almost 25%. While much of that increase reflects the sharp rise in gold prices, he said geopolitical risks have also fundamentally changed the reserve-management landscape.

Gold’s most important characteristic, Nagel said, is that physical bullion does not depend on an issuer or counterparty fulfilling a financial obligation. Foreign securities and deposits can potentially be frozen through sanctions, while domestically held physical gold does not face the same risk. That makes the metal an important diversification asset during periods of economic, financial and geopolitical stress.

Nagel said that while rising global government bond yields have made sovereign debt relatively more attractive, rising government indebtedness has simultaneously increased concerns about the creditworthiness of those assets.

During a question-and-answer session, he added that fiscal concerns can themselves become a catalyst for gold.

“It is true that when markets are concerned about such levels, that could also trigger the gold price,” he said, adding that the job of central banks would have been easier in recent years with greater fiscal discipline.

For Nagel, Germany offers a clear example of gold’s continuing strategic importance. The Bundesbank is the world’s second-largest official gold holder, with more than 3,500 tonnes, he said.

Nagel said central banks have increasingly recognized the benefits of building better-diversified reserve portfolios, describing that shift as an ongoing trend that he does not expect to disappear.

“I believe gold will have a significant role when it comes to central bank reserves,” he said.

Global economy remains surprisingly resilient

Despite mounting geopolitical uncertainty, Nagel struck a cautiously optimistic tone on the global economy.

He said global growth has remained robust despite the conflict in the Middle East and disruptions to shipping through the Strait of Hormuz. World trade continues to expand, while investment in artificial intelligence infrastructure remains particularly strong.

“The global economy has been remarkably resilient in the face of these challenges,” he said.

The euro-area economy has also performed better than expected. Nagel pointed to stronger exports and private consumption, along with a recovery in industrial activity.

ECB staff now expect the euro-area economy to expand 0.9% in 2026 and around 1.5% in both 2027 and 2028. Nagel said domestic demand should increasingly drive growth as recovering real household incomes and a resilient labor market support consumption. Investment should also benefit from spending on digitalization, the green transition, energy security, defense and artificial intelligence.

Germany is showing similar signs of improvement. Nagel said robust foreign orders and improving industrial sentiment point to broad-based momentum, while infrastructure and defense spending should provide additional support. He said German real economic growth could average around 1% this year.

However, Nagel cautioned that the outlook remains highly uncertain and dependent on geopolitics, particularly through its impact on trade, energy prices and confidence.

Inflation remains the biggest concern

While growth has proved resilient, Nagel was considerably more cautious about inflation.

The immediate impact of the Middle East conflict has been higher energy prices, and Nagel said central banks cannot prevent the initial price shock. The critical issue is whether higher energy costs prove temporary or begin spreading through the broader economy.

If energy prices remain elevated, companies could pass higher costs to consumers while workers seek higher wages to compensate for lost purchasing power. That could turn an isolated energy shock into a more persistent inflation problem requiring a monetary policy response.

ECB staff expect euro-area inflation to average 3.0% this year before falling to 2.5% in 2027 and 2.1% in 2028. However, Nagel said underlying price pressures remain strong and risks to the inflation outlook are tilted to the upside.

He highlighted low European gas storage levels, damaged refining capacity, drought, wildfires and fertilizer shortages as potential sources of additional price pressure. At the same time, he said there are not yet clear signs that the latest inflation shock is becoming embedded in wage and price setting, while longer-term inflation expectations remain consistent with the Eurosystem’s 2% target.

Against this backdrop, Nagel defended the ECB’s decision to raise interest rates by 25 basis points in both June and September, bringing the deposit rate to 2.5%. He said future policy decisions will remain data-dependent and will be made meeting by meeting.

Asked directly how worried he was about inflation following the U.S.-Iran conflict, Nagel acknowledged that the picture remains challenging, noting that oil prices had risen from around $70 before the summer break to above $100.