Major Central Banks Plan to Boost Gold Buying Rally

According to the latest annual survey by the World Gold Council (WGC), an increasing number of central banks are planning to boost their gold reserves over the coming year. Additionally, central banks anticipate that their counterparts will also step up their gold purchases.

The survey results serve as a reliable indicator of potential central bank gold acquisitions and their magnitude. Presently, central bank gold purchases are at their highest levels in over fifty years, and the survey indicates that this trend of purchasing the precious metal, is likely to persist in the financial market.

Read more on the topic here: Central Banks persisted in record breaking gold purchases last year

Last year, central banks purchased a total of 1,037 tons of gold, marking the second-highest amount in history

In 2022, they acquired 1,082 tons of gold, setting an all-time record. Notably, the first quarter of this year also saw substantial purchases, details of which can be found here.

These significant gold acquisitions by central banks have been a major factor in driving gold bullion prices to consecutive record highs this year. On May 20, the price of gold soared to $2,450 per ounce, achieving an all-time peak.

“Despite very strong demand and rising gold prices over the past two years, many reserve fund managers remain bullish on gold,”

Shaokai Fan, head of WGC’s central banking sector, said in a statement.

The Reserve is Planned to be Further Increased

A total of 70 central banks participated in the survey conducted from February to April

Among them, 29 percent indicated plans to increase their gold reserves over the next 12 months. This represents the highest percentage since the WGC began conducting the survey in 2018. For comparison, the corresponding figure was 24 percent in 2023.

The survey also revealed that 81 percent of central banks anticipate an increase in gold reserves this year, up from 71 percent last year.

The survey highlighted the primary reasons central banks purchase gold. Here are the top three reasons:

• Gold is a long-term store of value and provides protection against inflation
• Good performance of gold during crises
• Gold is an effective way to diversify your portfolio

The Share of Dollars ($) is Falling, and Shares of Gold are Rising

It is also expected that the proportion of dollar-denominated assets in reserves will decrease within the next five years. While only 4 percent of central banks anticipated a significant decrease in the share of dollars in 2022, this year that figure has risen to 13 percent.

Additionally, an increasing number of central banks anticipate a rise in gold holdings over the next five years

In 2022, 46 percent of respondents expected an increase in reserves; this year, that number has risen to 69 percent.

41 percent of respondents indicated that they store physical gold in vaults within their own country, up from 35 percent in 2023. The most popular storage location, for Central Bank holdings, is the Bank of England, with 55 percent of respondents keeping at least part of their gold there. Additionally, 15 percent of respondents plan to change the storage location for at least some of their gold, compared to only 6 percent in 2023.

Some Key Takeaways

The WGC survey effectively reflects several accelerating global trends. Central banks have identified inflation protection as their primary reason for increasing gold reserves, indicating that concerns about inflation remain significant despite major central banks’ assertions that the threat of inflation has subsided.

It is highly likely that we will see another surge in inflation and interest rates, and central banks are likely to recognise this as well

Additionally, the survey reflects a trend where gold is increasingly replacing government bonds as the ultimate safe-haven asset. A notable example is China, which has been aggressively selling United States Treasuries while simultaneously buying gold.

Read more here: China sells US treasuries and buys gold

The anticipated decline in dollar-denominated assets underscores growing concerns about the US financial position. Historically, countries have preferred to hold their reserves primarily in US and other developed nations’ bonds. However, this preference is rapidly shifting.

It also highlights geopolitical polarisation. While central banks in developed countries do not need to worry about sanctions, this is a significant concern for many developing countries (26 percent of respondents). Additionally, nearly a quarter of central banks in developing countries and emerging markets anticipate changes in the international monetary system.

The importance of these concerns has grown significantly in recent years. All of this points to a broader trend characterised by the diminishing influence of the dollar and the decline in government bonds due to substantial debt burdens.

The survey indicates that central bank gold purchases will continue to play a significant role in supporting gold prices.