Central banks have been on a gold-buying binge, with purchases reaching a record high in the January-September period, according to a report by the World Gold Council. In this nine-month period, central banks around the world collectively bought 800 tons of gold, marking a 14% increase compared to the same period last year.
The report, which analyzes global gold demand trends for the third quarter, revealed that global gold demand (excluding over-the-counter trading) in Q3 was 8% higher than the five-year average. However, it slipped 6% compared to the previous year’s all-time high.
China emerged as the largest buyer of gold this year, maintaining its 11-month buying streak. Other notable buyers included Poland, Singapore, Türkiye, Russia, and India. These increased purchases by emerging economies reflect a global trend of central banks diversifying their reserve currencies away from the US dollar.
The erosion of trust in the greenback played a significant role in this shift. The United States weaponized its currency by imposing sanctions on Russia during the Ukraine conflict, freezing billions of dollars of the country’s foreign reserves. As a result, central banks worldwide have been seeking alternative stores of value, including gold.
Gold has historically been considered a safe-haven asset, especially during times of economic uncertainty. Central banks often turn to gold as a way to safeguard their economies and mitigate potential risks associated with other currencies. This is particularly true for emerging economies that are more vulnerable to external shocks.
The surge in gold purchases by central banks reflects not only a desire for security but also a long-term strategy to maintain stability. Diversifying reserves across different assets, including gold, helps protect central banks from the potential devaluation of a single currency or significant fluctuations in financial markets. Gold is known for its ability to retain value and act as an inflation hedge.
While the report highlights the record-breaking gold purchases by central banks, it also notes that global demand for gold has decreased compared to the previous year’s peak. This decline may be attributed to various factors, including the ongoing pandemic, economic uncertainties, and fluctuations in gold prices.
Despite the decrease in overall demand, the central banks’ buying spree underscores the continued importance of gold in the global financial system. Central banks not only serve as custodians of reserve assets but also play a crucial role in stabilizing their economies. Their increased purchases of gold reflect their confidence in the precious metal and its ability to safeguard their nations’ wealth.
In conclusion, central banks worldwide have been actively adding gold to their reserves, with purchases reaching record levels in the January-September period. This trend reflects the diminishing trust in the US dollar and the desire for diversification among emerging economies. While global gold demand has decreased compared to the previous year’s peak, central banks’ continued interest in gold highlights its enduring role as a safe-haven asset and a strategic reserve for long-term stability.