Central bank demand for gold has reached a record high, providing a potential long-term floor for prices even amid recent market weakness.
A report released on Tuesday by the World Gold Council reveals that 45% of the central banks surveyed plan to increase their gold reserves over the next year. This figure represents the highest level of intent since the survey began in 2018. Notably, only one central bank indicated plans to reduce its holdings.
This finding suggests that a key driver behind gold's previous record-breaking rally remains intact, despite the price retreat witnessed this year. Over the past three years, sustained and accelerated central bank purchases have contributed to a more than doubling of the gold price.
However, the market environment has shifted in 2024. The conflict in the Middle East has pushed up energy costs and reinforced expectations that interest rates will stay higher for longer. This has diminished the appeal of non-yielding gold, leading to a partial reversal of earlier gains.
Concurrently, speculative capital has been exiting related trades, contributing to a recent decline that has pushed gold prices to their lowest level since November of last year.
Emerging Economies Lead the Charge
The survey indicates that potential demand over the coming year is primarily concentrated among central banks in emerging market and developing economies. Approximately 53% of these institutions plan to add to their gold reserves, compared to just 18% of central banks in developed economies.
Shaokai Fan, Global Head of Central Banks at the World Gold Council, noted that price dips can present buying opportunities for some institutions. "I think a price drop is a good opportunity for some central banks to start buying," he stated.
He further explained that in 2025, many central banks had adopted a wait-and-see approach due to elevated prices. "We did find many central banks saying, 'Oh, the price is a bit high now, I want to wait and see if there is an opportunity to buy,'" Fan added.
Despite recent sales by countries like Turkey, Russia, and Azerbaijan, the overall pace of central bank gold buying accelerated globally in the first quarter of this year.
Regarding funding sources, central banks show a preference for accumulating gold through domestic channels. The survey found that about half of the central banks planning to increase reserves intend to use local currency to purchase gold from domestic miners, rather than depleting their limited foreign exchange reserves. Another 38% plan to fund purchases by selling other reserve assets.
On storage arrangements, the Bank of England remains the primary custodian for global central bank gold, with 57% of surveyed institutions using its facilities. However, a trend towards decentralization is emerging.
Data shows that over the past year, 9% of central banks increased the amount of gold stored domestically, up from 5% the previous year. An additional 10% have begun diversifying their storage locations, a rise from the earlier 2%.
Fan highlighted that political risk is "definitely an important factor for central banks to consider." He suggested this shift could create opportunities for emerging gold storage hubs like Singapore, which are actively promoting central bank custody services to foster local gold market development.
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