Central banks continue gold purchases

By Glenn Dyer | More Articles by Glenn Dyer

Something to gladden the hearts of gold bugs: the major players in the market for the past two years—central banks—are not going to abandon the metal anytime soon, even if the People’s Bank of China made headlines by stopping purchases in May when prices soared to all-time highs.

A survey released by the World Gold Council (WGC) in London on Tuesday revealed that more than 80% of those surveyed expect reserve managers (central banks) to increase their holdings in the next year.

This includes central banks from many advanced economies, though not the US Fed, the European Central Bank, the Bank of England, or the Reserve Bank of Australia.

The council said this was the highest level recorded since the Central Banks Gold Reserves (CBGR) survey started.

Led by China, Turkey, and India, many central banks helped push their combined purchases to more than 1,000 tonnes of gold in both 2022 and 2023, according to the WGC.

US sanctions on Russia’s dollar-denominated assets prompted a rush among non-western official financial institutions for bullion—the value of which does not rely on any government or bank, unlike currencies. The consecutive years of record buying, the pace of which has continued into this year, have been a driving factor behind gold’s rally to nearly $US2,454 per ounce last month. It is up 42% since the Israel-Hamas conflict began on October 7.

The survey also found that nearly 30% of the 70 central banks involved plan to add to their own gold reserves within the next year. The WGC said, "This favorable view of gold from reserve managers persists despite two successive years of record central bank purchasing and the gold price hitting new all-time highs in 2024.”

According to the report, "reserve managers indicate that they are looking to gold to help mitigate risks and prepare for further political and economic uncertainty globally" (the so-called safe haven effect).

"Although seven in ten still view gold’s legacy as a reason to hold it (71%), other reasons have surpassed it this year.

"The top three reasons to hold gold now include gold’s long-term value (88%), performance during a crisis (82%), and its role as an effective portfolio diversifier (76%),” the WGC said.

And while support for gold was still strongest among central banks in emerging and developing economies, the WGC said they “were joined by advanced economy central banks, which now view gold more positively.”

More than half (57%) of the 70 central banks now see gold accounting for a higher proportion of their reserves by 2029-2030 than in 2023 (38%).

"Advanced economy central banks have also become more pessimistic in their outlook for the US dollar’s share of global reserves, a view which has consistently been more prominent among emerging and developing economies.

More than half (56%) of advanced economy respondents believe the US dollar’s share of global reserves will fall (up 10 percentage points year-on-year), while 64% of emerging and developing respondents share the same view.

Shaokai Fan, WGC Global Head of Central Banks & Head of Asia-Pacific, said in a statement on the survey, “Extraordinary market pressure, unprecedented economic uncertainty, and political upheavals around the world have kept gold front of mind for central banks.”

"Many of these institutions have become more aware of the asset’s value as a way to manage risks and diversify their portfolios.

"What has been remarkable is that despite record demand from the official sector in the last two years coupled with climbing gold prices, many reserve managers still maintain their enthusiasm for gold.

"While influences like price may temporarily slow down purchases in the near term, the broader trend remains in place, as managers recognize gold’s role as a strategic asset in the face of ongoing uncertainty.”

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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