In 2018, central banks purchased 651.5 tonnes of gold, the highest amount since 1967. Banks are seeking to diversify their reserves by investing in safe and liquid assets. Central banks have been buying gold for the ninth consecutive year after selling gold for more than twenty years.
According to the World Gold Council, in 2022, central banks purchased 1,136 tonnes of gold, the highest amount in more than 55 years. The reasons behind this gold rush are multiple, but geopolitical uncertainty from the previous year played a significant role. However, according to a report by the International Monetary Fund (IMF) entitled “Gold Has No International Resort: Barbarous Relic No More?” published on January 27, 2023, the main reason for central bank purchases is not related to inflation or geopolitical uncertainty but rather with US extraterritorial sanctions and law. Central banks of emerging countries are particularly active in gold purchases.
In summary, central banks purchased a record amount of gold in Q3 of 2022, with almost 400 tons bought, a 300% increase from the same period a year ago. Turkey, Uzbekistan, and Qatar emerged as the biggest known buyers, but there was still a sizable unknown contingent. The report highlighted that countries known for not reporting their gold purchases regularly include China and Russia, leading to speculation about which countries are behind these acquisitions. The trend of central banks buying gold suggests that they are preparing for what comes next and raises questions about the future of the global economy. Gold is viewed as a safe haven asset in times of economic uncertainty, and the anonymous nature of these purchases also raises questions about what these central banks know that we don’t. The recent purchases of gold by central banks could be a sign that they are anticipating a devaluation of the US dollar, as gold is priced in dollars, and a weaker dollar could lead to higher gold prices. Overall, the trend of central banks buying gold is something to keep an eye on as it suggests that there is something big on the horizon.
Although the names of the central banks that bought gold in 2022 have not been disclosed, it is suspected that the Chinese central bank, the Russian central bank, and the central banks of Gulf countries are the most active in these purchases. The IMF report highlights that central banks are concerned about US extraterritorial law and potential sanctions that could result if they use the US dollar as a reference currency. Therefore, gold appears as a safe asset for central banks that want to diversify their reserves outside the US financial system.
The massive purchase of gold by central banks in 2022 can be interpreted as a sign of caution in the face of geopolitical uncertainty, but above all as a response to US pressure exerted by sanctions and extraterritorial law. Russia has become the largest buyer of gold, with a record acquisition of 274.3 tonnes in 2018, and is approaching the level of reserves attributed to the USSR in 1990.