(Bloomberg) – Central banks could regain their appetite for buying gold after sitting on the sidelines last year.

Central banks from Serbia to Thailand have increased their holdings of gold and Ghana recently announced purchase plans, as the specter of accelerating inflation looms and a recovery in global trade provides the firepower needed to make purchases. A rebound in buying – which had fallen to the lowest in a decade – would strengthen the outlook for gold prices as some other sources of demand weaken.

“In the long term, gold is the most important guardian and guarantor of protection against inflationary risks and other forms of financial risk,” said the National Bank of Serbia. Serbian President Aleksandar Vucic recently announced that the central bank intends to increase holdings of the precious metal from 36.3 tonnes to 50 tonnes.

Bullion has come under pressure this year as higher bond yields made the non-interest bearing safe haven less attractive to investors. After recovering in April and May, gold fell the most in more than four years last month as the Federal Reserve turned more hawkish and the dollar strengthened.

The recovery in world trade is strengthening the current accounts of emerging countries, giving their central banks the ability to buy more gold. Rising crude prices are also boosting bullion purchases by oil exporters, notably Kazakhstan and Uzbekistan, according to James Steel, chief precious metals analyst at HSBC Holdings Plc. This should continue, he said.

“If a central bank is looking to diversify, gold is a wonderful way out of the dollar without selecting another currency,” he said.

The precious metal was little changed on Monday at $ 1,787.78 an ounce at 6:35 am London time.

In a bullish scenario, as the global economy rebounds, central bank purchases could reach around 1,000 tonnes, Aakash Doshi and other Citigroup Inc. analysts wrote in a report. The bank expects purchases to climb to 500 tonnes in 2021 and 540 tonnes next year. That’s below twin peaks above 600 tonnes in 2018 and 2019, but a significant advance from the 326.3 tonnes purchased last year, according to data from the World Gold Council.

The story continues

Read more: BOE Gold Commands High Premium, Signals central bank purchase

About one in five central banks intend to increase their gold reserves over the next year, according to a WGC survey released last month.

Central banks are a component of physical purchases that help counter large investor outflows from exchange-traded funds, said Suki Cooper, precious metals analyst at Standard Chartered Plc.

“Geopolitical tensions, the need for diversification and increased uncertainty have continued to stimulate interest in gold reserves,” Cooper said.

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