A survey report on central bank gold reserves released last month by the World Gold Council (WGC) shows that 29% of central banks plan to increase their gold reserves in the next 12 months, marking the highest level since the survey began in 2018. In recent years, central bank gold purchases have been a vital theme in the gold market, providing a crucial support for the surge in gold prices, which frequently hit historical highs.
This survey was conducted between February 19 and April 30 this year, and responses were received from 70 central banks.
Recently, international gold and silver prices have once again fluctuated upwards, with international investment banks such as Citi and Bank of America issuing reports that continue to be bullish on gold prices, predicting that gold prices may rise to $3,000 per ounce in the future, an increase of 30% from current levels.
Central bank gold purchases have hit new highs for two consecutive years, with gold prices climbing to historical highs in 2024. Yet, central banks around the world remain keen on gold. The main reasons for holding gold by central banks are as a long-term store of value or a hedge against inflation, with other factors including gold’s performance during crises, its portfolio diversification function, and the absence of default risk.
Moreover, the attitudes towards gold differ among central banks in developed economies and those in emerging market and developing economies (EMDE). For instance, more EMDE central banks purchase gold out of concerns about systemic financial risks, sanctions, and expected changes in the international monetary system.
In the past two years, the leading buyers of central bank gold have been Asian countries, especially China. There are several reasons for the massive gold purchases by the People’s Bank of China. Firstly, the Chinese central bank has been making efforts to reduce its reliance on the US dollar. By using gold as a reserve asset, it can help reduce this reliance and diversify risks. The survey report also shows that 11% of the respondent central banks stated de-dollarization as a crucial reason for their decision to purchase gold.
In 2022, global central bank gold purchases reached a record high of 1,082 tons, slightly declining to 1,037 tons in 2023 but still at historical high levels. During the first quarter of 2024, global central banks bought 289.8 tons of gold, with the top three buyers being Turkey, China, and India. At this rate, the scale of central bank gold purchases this year is also unlikely to be low.
Notably, the People’s Bank of China reported zero gold purchases in May this year, the first time in 18 months, sparking concern among market participants. However, in the long run, the trend of gold purchases by the Chinese central bank is unlikely to change.
