Gold’s rise towards a price of $3000 an ounce was derailed last month after reports that China’s central bank had stopped buying but other central banks seem likely to pick up the slack.
A new survey of 70 central banks revealed the highest level of expected central bank gold buying since the analysis of their gold exposure started six years ago.
Central banks remain active gold buyers. (Photo by David Gray/AFP via Getty Images)
None of the banks which responded to the survey conducted by the World Gold Council (WGC) expect central bank buying to decline whereas 81% expect buying to increase.
Central banks are critical to the price of the metal which doubles as a global currency with their buying of 1037 metric tons last year only a fraction less than the record 1082 metric tonnes bought in 2022.
It was central bank activity in the gold market which helped drive the price up by 49% in just 20 months from $1631/oz in October 2022 to an all-time high of $2427/oz last month.
The biggest buyer in the gold rush was The People’s Bank of China which acquired 225 metric tonnes last year alone.
But as China and other central banks were buying private investors were cashing out, tempted by the high price. In the March quarter net outflows from exchange-traded funds totaled 113 tonnes.
That trend of private selling and central bank buying appears to have been reversed in May when ETF holdings rose by 8.2 metric tonnes, the first increase in 12-months.
Private Buyers Returning
Private buyers could become an additional gold-price driver, joining the central banks, especially if official U.S. interest rates start to decline later this year.
But even after rates roll-over central banks are likely to remain in charge of the gold market given their status as the biggest owners of gold and a sector seen as being keen to diversify out of excess exposure to the U.S. dollar.
The WGC survey, conducted between February 19 and April 30 found that 69% of respondents expect gold, as a proportion of total central bank reserves, will be higher in five years with 66% saying that the share of gold would be moderately higher and 3 saying significantly higher.
Pouring bar of fine gold at more than 2000 degrees.
Two years ago, the same survey revealed that gold’s share of total reserves five years into the future would be up 46%.
“The planned purchases (by central banks) are chiefly motivated by a desire to rebalance to a more preferred strategic level of gold holdings, domestic gold production, and financial market concerns including higher crisis risks and rising inflation,” the WGC said in an opening statement to its latest survey.
“These results come against a backdrop of ongoing geopolitical tensions, conflict in the Middle East, a protracted war in Ukraine and elevated China-U.S. tensions.’
“On the macroeconomic front, while global inflation is starting to cool, economic recovery is proceeding at an uneven pace and around the world concerns loom regarding underlying financial vulnerabilities.
“Accordingly, ‘interest rate levels’, ‘inflation concerns’ and ‘geopolitical instability’ continue to be the leading factors in central bankers’ reserve management decisions, as they were last year.”
