The complex geopo­li­tical environ­ment forces central banks to focus on managing their gold reser­ves

An increasingly complex geopolitical and financial environment is making gold reserves management more relevant than ever, according to the latest 2024 Central Bank Gold Reserves Survey. In 2023, central banks added 1,037 tons of gold – the second-highest annual purchase in history – following a record high of 1,082 tons in 2022.

The global central bank gold holdings are expected to increase, or at least remain unchanged over the next 12 months. Eight central banks increased their gold reserves by a tonne or more in April. The Central Bank of Turkey was the largest buyer, increasing its official reserves by 8t. With 11 consecutive months of buying, the bank’s y-t-d net purchases now total 38t and lift its total official gold holdings to 578t. The National Bank of Kazakhstan (6t), Reserve Bank of India (6t), National Bank of Poland (5t), Monetary Authority of Singapore (4t), Central Bank of Russia (3t), and Czech National Bank (2t) were the other major buyers in the month, according to the World Gold Council, while the People’s Bank of China reported a significant slowdown in its gold buying. The bank reported that its gold reserves rose by just under 2t in April to 2,264t.

Based on these record numbers, gold continues to be a reserve asset by central banks. According to the 2024 Central Bank Gold Reserves (CBGR) survey, conducted between 19 February and 30 April 2024, 29% of central bank respondents intend to increase their gold reserves in the next twelve months. The planned purchases are mainly driven by financial market concerns including higher crisis risks and the threat of rising inflation.

Looking towards the end of the year

Although bar and coin sales have slowed down a bit recently due to heightened geopolitical risks, as well as the fact that gold has been a strong-performing asset, it is still expected to continue to attract investors.

Gold extended its growth in May albeit with a narrower increase than in recent months. Both the LBMA Gold Price AM in USD and the SHAUPM in RMB rose by 1% last month. The weakening dollar, lower yields, and improved gold ETF demand drove gold’s strength during the month.

During the first week of June, impacted by slowing central bank purchases and changing investor expectations of the US Fed’s future rate cuts, the LBMA Gold Price AM in USD fell by 2%. Meanwhile, the SHAUPM in RMB saw a 1% rise amid the weaker local currency.

Optimism towards gold’s future role in global reserves continues to grow, as gold’s role as a long-term store of value is the most highly rated reason for central banks to hold gold, followed by gold’s performance during times of crisis. It will be interesting to see how the market develops in the second half of the year.

Source: World Gold Council