Global central banks' "gold rush" is more intense than what you see

Against the backdrop of the central bank's large-scale gold purchases and ongoing geopolitical uncertainties, the demand for gold is increasing day by day, with the price of gold hitting a historic high in April this year.

Wall Street News previously mentioned that in its report on May 2nd, Goldman Sachs pointed out that the "gold rush" of central banks, especially those in emerging markets, has long supported the rise in gold prices.

Goldman Sachs stated that going forward, geopolitical and financial shocks continue to drive central banks' demand for gold. The report stated:

"Surveys and historical experience indicate that emerging market central banks are 'panning for gold' to hedge against geopolitical and financial shocks."

"Our model finds that concerns about geopolitical shocks and shocks to U.S. sovereign debt or the financial dollar system can explain why central banks are buying more gold."

Central Banks' "Gold Rush" Is "Hotter" Than Imagined

The report indicates that the central banks' "gold rush" has mainly driven the growth in global gold demand, as demand for investment, jewelry, and other categories has remained relatively stable or even declined.

It is worth noting that since mid-2022, the reported purchases of gold by central banks globally have remained stable, while unreported purchases have been a major driver of global central bank gold purchases.

Data from the report shows that since mid-2022, global central bank gold purchases have tripled, reaching around 10 million ounces per quarter. Among them, the six emerging market central banks of China, Poland, Turkey, Singapore, India, and Qatar have driven all reported net purchase volumes.

This means that in the past two years, the scale of central bank gold purchases is much larger than what we "can see."

Citing data from the World Gold Council, the report states that global central banks made net purchases of 9.3 million ounces in the first quarter of 2024, with reported net purchases amounting to only 2.8 million ounces. Turkey (1 million) and China (0.9 million) reported the largest net purchase volumes.

The report also adds that while the scale of central bank gold purchases has significantly increased, there may still be room for further growth in the official gold reserves of emerging market central banks, as their average share of gold in official reserves is 6%, still about 50% lower than the 12% share in developing countries.

Gold Price Expected to Rise to $2700 by Year End

In a survey by the World Gold Council in 2023, 37 emerging market central banks stated that financial risks and geopolitical factors are key factors influencing their decisions to hold gold.

Goldman Sachs pointed out in the report that many emerging market central banks view gold as a financial hedge, as these central banks are increasing the proportion of gold reserves following the financial crisis triggered by the 2008 U.S. subprime mortgage crisis, in order to reduce dependence on the U.S. dollar Therefore, the report indicates that with the strong demand from emerging market central banks, Asian households, and the expectation of a rate cut by the Federal Reserve, the rise in gold prices is "just the beginning." It is expected that by the end of the year, the price of gold could rise to $2700 per ounce, implying a further increase of over 14% from current levels.