LONDON - An escalation in geopolitical conflicts is the biggest risk to the global economy, according to central bank reserve managers, who are generally positive about the world's economic outlook, according to an annual survey released on Thursday.

The UBS Asset Management survey of 40 leading central banks that manage more than $15 trillion, about half of the world's foreign exchange (FX) reserves, found two thirds expected the global economy to return to moderate growth and inflation in the next five years.

It found that 71 percent expect US headline consumer inflation to be between 2 percent and 3 percent in a year's time. The Federal Reserve has a 2 percent inflation target.

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Gold has been a particular beneficiarfy of diversification, and its price has hit record highs. Among respondents, 24 percent had increased their gold exposure in the past year and 30 percent plan to do so in the coming year, although they also plan to raise bond allocations

But 87 percent of the reserve managers surveyed flagged further escalation in geopolitical conflicts as the biggest threat to this benign outcome, and 41 percent said they are diversifying their investments more across regions and currencies.

Gold has been a particular beneficiarfy of diversification, and its price has hit record highs. Among respondents, 24 percent had increased their gold exposure in the past year and 30 percent plan to do so in the coming year, although they also plan to raise bond allocations.

"Gold, an asset held by central banks largely for historical reasons linked to the time when it was a pillar of the global financial system, risks being brought back to life by ongoing geopolitical trends,” said Massimiliano Castelli, head of strategy and advice at UBS Asset Management.

The upcoming US election could add to tensions, according to the survey. Survey participants said their average share of dollar holdings was 55 percent, virtually unchanged from the previous year.

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Five participants indicated that they introduced China's yuan as a new currency in their reserves.