World Central Banks continue to accumulate Gold. 1,470 Metric Tonnes Bought in past 16 months!
Central banks around the world have been accumulating gold reserves at an unprecedented rate in recent years. In 2022, global central banks posted their largest ever annual purchase of gold, amounting to an estimated 1,083 metric tons. This buying spree has continued into 2023, with 387 metric tons of net gold purchased in the first half of the year alone.
Reasons for Increasing Gold Reserves
The primary reasons driving central banks' gold purchases are:
Diversification of reserves away from fiat currencies like the US dollar and euro.
Improving balance sheets and gaining liquidity from an asset without credit risk.
Gold's characteristics as a long-term store of value and inflation hedge.
Its role as an effective portfolio diversifier and safe haven during crises.
Emerging Markets Leading the Charge
Emerging market economies have been at the forefront of this gold accumulation trend. A World Gold Council survey found that emerging markets ranked gold's ability to serve as a "geopolitical diversifier" as more relevant compared to developed economies, amid rising geopolitical uncertainties. Emerging markets remain underallocated to gold compared to their developed counterparts, indicating potential for further purchases.
Central Bank Demand Outlook
The reasons driving central bank gold purchases are unlikely to change given the current economic and geopolitical risks. As a result, analysts expect central banks to continue their role as net purchasers of gold, supporting global gold demand beyond traditional consumer and investor sectors. This sustained demand from central banks is expected to provide further diversified support for gold's long-term price outlook.In summary, central banks worldwide, particularly in emerging markets, have been aggressively accumulating gold reserves to diversify away from fiat currencies, improve their balance sheets, and hedge against economic and geopolitical risks. This trend is expected to continue, underpinning global gold demand and supporting the precious metal's price in the long run.
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