Record central bank purchases of gold

Gold demand reached record highs over the past year and shows no sign of abating in 2023. Central bank purchases of gold are off to the best start to a year in more than a decade.

Concerns about contagion from the banking crisis in the United States, financial market volatility and geopolitical uncertainty have further heightened interest in gold, which is considered a safe-haven asset against any economic uncertainty. The upward trend is reflected by consumers, private investors, governments and central banks.

According to the latest data published by the World Gold Council (WGC), on a year-on-year basis, central banks have recorded net purchases of 125 tonnes of gold at the end of February this year. This is a figure not seen since at least 2010 and continues the upward trend experienced during 2022, ending the year with a record 1,136 tonnes of gold sold.

Therefore, this confirms that the gold market continues to receive support from the central banks of countries that want to diversify their reserves to shield their economies, which leads us to expect that the price of gold will continue to rise significantly throughout this year. The price of gold has risen by 9.2% in the first quarter of the year, a revaluation that is in line with Bank of America’s forecast of a 10% increase in the price of gold by 2023.

The big gold buyers

The increase in gold purchases has been driven largely by the relentless demand from China’s central bank and the Turkish central bank, with 25 and 22 tonnes added respectively in February, for a cumulative total of 2,050 and 587 tonnes representing 3.7% and 33% of their international reserves.

On the other hand, despite the ban on selling Russian gold in Western markets, the Central Bank of Russia continues to increase its gold reserves at a good pace. Although no specific data on its purchase schedule is available, it has disclosed that at the end of February 2023 it had 2,330 tonnes of gold reserves, 31 tonnes more than at the end of January 2022, representing 24% of Russia’s international reserves.

Gold purchases by central banks of countries such as Uzbekistan (8 tonnes), Singapore (7 tonnes) or India (3 tonnes) were added to the February net purchases figure. Kazakhstan’s central bank was the exception, reducing its gold reserves by 13 tonnes to a total of 342 tonnes. A deviation from the trend followed by the other banks need not be significant, given that central banks purchasing gold from local sources are often frequent sellers of gold.

Whether gold is accumulating as a reserve asset in the face of escalating hostilities in the US-China trade war, sanctions against Russia or instability in the Western banking sector, the sharp increase in buying has not gone unnoticed by geopolitical analysts. Could this accumulation of gold be a sign of a change in the international monetary system? Of a return to the gold standard? Of a new global crisis? Whatever the case, it is clear to central bankers that when things go wrong, nothing is as safe as gold.

Protecting savings with physical gold has been one of 11Onze’s main contributions to its community, and now the range of products is expanding. This is why, in the face of volatility, still high inflation and the growing crisis of confidence in the banking system, gold is once again strengthening its position as a safe-haven asset. Discover Gold Seed at Preciosos 11Onze.