Despite Record Highs, Central Banks Continue to Buy Gold

By Doug Young – 22 September 2024

Introduction

The gold market has been on a remarkable upward trajectory over the past few years, with prices reaching record levels. Surprisingly, even as gold prices surge, central banks around the world show no signs of slowing down their gold purchases.

This trend raises questions about the factors driving central banks to stockpile gold, regardless of its price.

Central Bank Gold Demand at All-Time Highs

Central banks have been consistent net purchasers of gold since the financial crisis, and their demand for the precious metal has only intensified in recent years.

Gold has risen roughly 25% in 2024 alone, soaring from around $2,000 per ounce to over $2,600 per ounce. Yet, central banks remain aggressive consumers of gold, undeterred by the rising prices.

July Gold Purchases Reach New Heights

According to the World Gold Council, central banks’ net purchases of gold more than doubled in July compared to previous months, reaching a total of 37 metric tons. In fact, July witnessed the highest monthly gold purchases by central banks, excluding January when the metal’s price was significantly lower.

These numbers follow the council’s midyear report, which revealed that net buying in the first half of the year totaled a staggering 483 metric tons, the highest for any January to June period on record.

Reasons Behind Central Banks’ Gold Stockpiling

Several factors drive central banks’ continued interest in buying gold, even at record high prices.

One of the primary motivations is the perception of gold as a long-term store of value. Central banks view gold as a reliable hedge against inflation and a strategic asset for preserving wealth.

Additionally, gold serves as an effective portfolio diversifier, reducing the risk of default and providing stability during times of crisis.

Gold’s Significance as a Long-Term Store of Value

Experts, including Michael Hartnett, Chief Investment Strategist at Bank of America, share concerns about inflation and its potential implications.

With signs of the Federal Reserve considering more interest rate cuts and persistent price pressures, central banks see gold as an attractive option for safeguarding assets.

Its historical performance during economic downturns and its reputation as a reliable inflation hedge further strengthen the case for central banks’ gold accumulation.

Conclusion

Despite the fact that gold prices have surged over 25% this year, reaching record territory, central banks worldwide continue to buy gold. Their ongoing commitment to stockpiling the precious metal suggests a strong belief in its long-term value and its ability to serve as a hedge against inflation and crisis.

As central banks accumulate gold, their actions reverberate in the gold market and may have far-reaching implications for the global economy.

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