Central Banks Keep Buying Gold

Written By Luke Burgess

Posted May 24, 2023

Central banks around the world have shown a significant increase in their demand for gold, with 2022 witnessing the highest annual gold purchases since record-keeping began in 1950.

According to the World Gold Council, central banks bought a staggering 1,078 tonnes of gold last year, more than double the 450 tonnes purchased in 2021.

Official sector institutions remained eager buyers, adding 228 tonnes in Q1 2023. While this figure is lower than the preceding two quarters, it nevertheless marks the strongest first quarter on record.

vdfSource: World Gold Council

This remarkable growth in central bank gold buying becomes even more impressive when considering the record-breaking pace of demand observed in the previous year. The rolling four-quarter total surged to 1,224 tonnes in Q1, primarily driven by substantial purchases in recent quarters.

The World Gold Council identifies four central banks as major contributors to the reported purchasing during the first quarter. Among them, the Monetary Authority of Singapore (MAS) emerged as the largest single buyer, increasing its gold reserves by 69 tonnes. This marked the first increase since June 2021 and highlights that gold buying in Q1 was not limited to emerging-market central banks. The MAS now holds a total of 222 tonnes in gold reserves, reflecting a 45% increase from the end of 2022.

Another notable buyer was the People's Bank of China (PBOC), which reported a 58-tonne increase in its gold reserves. Since recommencing reports of purchases in November 2022, the PBOC has added a total of 120 tonnes to its gold reserves, raising them to 2,068 tonnes, equivalent to 4% of the reported gold reserves worldwide.

During Q1, the Central Bank of the Russian Federation provided a significant update by resuming the reporting of its gold reserves. The data for this period reveals that Russia's official gold reserves declined slightly to reach 2,327 tonnes, representing 25% of its total reserves.

The robust nature of central bank gold buying shows no signs of changing in the short term. Experts maintain the belief that purchases will continue to outweigh sales as we move into Q2 and beyond.

Central bank purchases represent a substantial increase in demand for gold. According to the WGC, approximately 21% of all gold demand in the first quarter of 2023 came from central banks.

Central banks are powerful and influential institutions with the ability to buy significant quantities of gold. When they enter the market as buyers, it adds to the overall demand for gold. Increased demand, all else being equal, tends to push prices higher.

Central bank buying has a psychological impact on market participants. It signals confidence in gold as a store of value and can influence the perception of gold's worth. When central banks (which are known for their financial acumen) buy gold, it can create positive sentiment among investors and lead to increased interest in gold as an investment asset. This can further drive up prices.

It's important to note that while central bank buying can influence gold prices, it is not the sole determinant. Gold prices are influenced by a wide range of factors, including economic conditions, geopolitical events, inflation expectations, investor sentiment, and market speculation. However, central bank buying is a significant factor that contributes to the overall supply-and-demand dynamics in the gold market, impacting prices in the process.