Central bank gold purchases have been an important story for the precious metal over the last several years, providing critical support as the gold price has soared to record levels.
The World Gold Council (WGC) released its latest survey on central bank gold reserves on Tuesday (June 18), indicating that 29 percent of central banks intend to increase their gold holdings over the next year.
The survey was conducted this year between February 19 and April 30, and includes responses from 70 central banks.
This year, the main reason for central banks to hold gold is as a long-term store of value or inflation hedge. Other factors include its performance during times of crisis, its ability to act as a portfolio diversifier and its lack of default risk.
Advanced economy and emerging market and developing economy (EMDE) central banks see different factors as more relevant. For example, more EMDE central banks view concerns about systemic financial risks, concerns about sanctions and anticipation of changes in the international monetary system as reasons to purchase the yellow metal.
However, the WGC points to a “notable convergence” in how advanced economy and EDME central banks look at gold.
“Whereas previous surveys showed wide gaps in how both camps viewed factors like ‘effective portfolio diversifier,’ ‘performance during times of crisis’ and ‘highly liquid asset,’ the divergence narrowed significantly this year,” the report states. The implication is that advanced economy central banks are seeing more value in gold’s financial role.
Watch the Investing News Network’s latest interview with the WGC’s Joe Cavatoni.
Over the past two years, gold purchases by central banks have been dominated by Asian banks, in particular China, which has sought to diversify its holdings and move away from dependence on the US dollar as a reserve currency.
Eleven percent of respondents cited de-dollarization as somewhat important to their decision making.
Central bank gold buying reached a record level in 2022, when 1,082 metric tons were added to national reserves. That amount was nearly matched in 2023, when 1,037 metric tons were purchased.
So far 2024 is looking to come close to the numbers seen during the past two years, with 289.8 metric tons bought during the first quarter of the year. The top three buyers at the start of the year were Turkey, China and India.
In May, China reported no gold purchases by its central bank for the first time in 18 months, causing some concern among market participants. However, experts have noted that the country has not reported buying in the past.
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Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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