Gold Continues to Boom. The Major Buyer: Central Bankers

This year’s bullion boom is remarkable on its own, but even more so as some central banks have become unusually aggressive buyers of gold.

Despite losing some luster this week, gold prices have risen 40% from an October 2022 trough. Historically, prices track holdings in bullion-backed exchange-traded funds, a proxy for Western demand. However, that logic was turned on its head as gold gained in the face of persistent ETF outflows. And central banks, which long played a supporting role for gold prices, emerged as a driver of this multiyear rally by buying gold bullion at unprecedented levels.

“This is a historical shift in the gold market dynamics,” says Imaru Casanova, portfolio manager for gold and precious metals at VanEck.

The invasion of Ukraine in early 2022 stirred fears about risks of U.S. dollar exposure for countries that don’t neatly align with the West. The Russian central bank’s gold holdings—24% of total reserves at the start of 2022—mattered more when sanctions targeted the country’s dollar assets.

In response, central banks in China, India, Turkey, and beyond dramatically increased their gold holdings. China bought bullion in each of the 17 months since October 2022 to become the biggest buyer of the past few years. Gold as a share of the country’s central bank reserves rose to 4.3% by the end of last year from 3.6% in early 2022, an increase of some $28 billion, according to World Gold Council data.

“There is clearly an objective to increase gold exposure, with the rationale being diversification,” says Michael Bolliger, chief investment officer for emerging markets at UBS Global Wealth Management. “Russia and the sanctions sent shock waves around the world.”