Recent data released by the World Gold Council shows that despite a slight slowdown in gold purchases by global central banks in the second quarter, they still achieved a net purchase of 483 tons of gold in the first half of 2024, which is 5% higher than the record of 460 tons in the same period of 2023.
Driven by global central bank gold purchases, global gold demand in the first half of this year increased slightly by 1.3% year-on-year to 2441.3 tons.
The Global Gold Demand Trends report also shows that the international gold price opened at $2062.66 per ounce in the first half of 2024, closing at $2326.32 at the end of June, an increase of 12.77%. The increase so far this year has reached 18.5%.
The surge in gold prices over the past two years has been driven by a major factor: de-dollarization. With excessive money printing, fiscal deficits, and a series of events triggered by the Russia-Ukraine war, the credit of the US dollar has gradually declined, and global central banks do not want to put all their eggs in one basket, thus continuing to buy gold. Additionally, another long-term bullish factor for gold is geopolitics, which is the medium-to-long term support for gold.
In addition to long-term positives, short-to-medium term positives for gold include the expectation of interest rate cuts and the possibility of Trump’s return to the White House.
However, record high gold prices may, in turn, suppress demand, including central bank demand for gold.
Data from the World Gold Council shows that the total demand for gold by central banks in the second quarter was 183 tons, an increase of 6% year-on-year but a significant decrease of about 39% compared to the first quarter. China is the main driving force behind the slowdown in central bank demand in the second quarter, with the People’s Bank of China increasing its gold reserves by only 2 tons in April and suspending gold purchases in May and June. Before this, the Chinese central bank had been increasing its gold reserves for 18 consecutive months.
Many analysts believe that China has paused its official gold purchases to lower gold prices.
Turkey was the largest buyer of gold in the first half of this year, buying a total of 45 tons, but significantly reduced purchases to 15 tons in the second quarter. India ranked second, continuously buying a total of 37 tons of gold in the first six months. Poland bought 19 tons of gold in the second quarter, becoming the largest buyer, and was also the second-largest gold buyer in 2023 (130 tons).
Other gold buyers in the second quarter:
A survey by the World Gold Council of 70 central banks between February 19 and April 30, 2024, shows that 29% of the surveyed central banks plan to increase their gold reserves in the next 12 months, the highest level since 2018. Last year, global central banks had a net purchase of 1037 tons of gold, slightly lower than the record set in 2022 but exceeding 1000 tons for two consecutive years, with China being the largest buyer.
Last year, central banks purchased gold for its crisis response value, diversification attributes, and store-of-value credentials, and these reasons for holding gold remain valid as we enter 2024.
Additionally, analysts at ANZ Bank recently stated that they expect the fever for central banks buying gold to remain strong for at least the next six years. According to their analysis, the loss of trust in US fixed-income assets and the rise of non-reserve currencies are other themes that may support central bank gold purchases.
