In line with a growing trend across emerging markets, central banks in sub-Saharan Africa are accelerating gold accumulation efforts, as a hedge against perceived United States' macro instability and rising global geopolitical risks.

While South Africa has historically maintained gold in its reserves, some sub-Saharan African countries are currently establishing domestic gold purchasing programs, capitalizing on abundant local gold deposits.

Leading the trend is Ghana, which has launched its domestic gold purchasing program. The West African country has witnessed a surge in both the volume and the value of its gold reserves, according to BMI, a unit of Fitch Group.

Between the second quarter of 2022 and the first quarter this year, Ghana's total gold holdings rose by 255 percent from 8.7 metric tons to over 31 tons.

Earlier this year, Ghana reached an agreement with nine mining companies to directly purchase 20 percent of their gold output at a 1 percent discount to the London Bullion Market Association price.

Orson Gard, a senior analyst in the Sub-Saharan Africa Country Risk team at BMI, said due to the surge in gold prices Ghanaian cedi has become one of the world's best performing currencies against the US dollar. "We are seeing a similar move across the region," he said. "Last year, Tanzania offered payment in local currency at a price published daily by the country's mining commission."

Last year, Nigeria launched its own national gold purchase program, and legislative action has since been taken to strengthen the Central Bank of Nigeria's ability to acquire domestically produced gold, BMI figures show.

"This year, several other markets have taken similar steps with Namibia and Rwanda, making concrete moves to diversify reserves through gold, while central bank governors in Kenya and Uganda have publicly floated similar ideas," he said.

In Burkina Faso, the government has, alongside the nationalization of mines, established a National Gold Reserve to stockpile at least 5 percent of its domestic production.

Gard said Zimbabwe recently relaunched a gold-backed currency, the Zimbabwe Gold, in a bid to stabilize its financial system.

"This does point to an increased confidence across the region in the ability of the metal to underpin stability," he said.

Risks exiting

However, the strategy is not without risk. Gard said any sudden drop in global gold prices could have significant implications for sub-Saharan Africa markets, especially for countries that have rapidly increased gold as a share of their total reserves — many of which began accumulating at relatively high prices.

Over the medium term, a gradual unwinding of gold price gains could expose these markets to long-term losses, Gard said.

This would not only weaken reserve adequacy but also undermine the credibility of central bank policy.

He noted that Ghana, Tanzania and Uganda are especially vulnerable in the event of a sharp drop or long-term easing in gold prices. This is because in addition to actively building up reserves, they rely heavily on gold exports for foreign exchange earnings.

"A decline in gold prices would directly erode the value of their reserves while also reducing export receipts, which in turn would weaken overall foreign currency inflows," Gard said.

Liquidity is another key challenge, given the difficulty of rapidly converting gold into liquid assets such as foreign exchange or short-term securities.

To address these concerns, some central banks have historically held gold abroad close to major financial hubs to aid convertibility.