'Lowest Net Buying in 10 Years' Central Bank, Leading Gold Price Rebound?

Expectations for Central Bank Gold Purchase Outlook

[Photo by Reuters Yonhap News]

[Asia Economy Reporter Byunghee Park] There is a growing outlook that gold prices could rebound due to expectations of central banks purchasing gold.

Gold prices fell by about 7% last month. The monthly decline was the largest since November 2016. As the US and European stock markets consecutively hit record highs, investors' preference for risk assets increased, reducing the investment appeal of safe-haven assets like gold. Additionally, the strength of the dollar acted as a negative factor for gold prices.

However, there is a forecast that bargain buying could flow in going forward. Serbian President Aleksandar Vu?i? announced on the 22nd of last month that the National Bank of Serbia would increase its gold reserves from the current 36.3 tons to 50 tons. Thailand and Ghana have also recently announced plans to increase their gold holdings.

This is because gold's investment appeal is expected to be highlighted as a hedging tool amid significant price declines and growing inflation concerns.

According to the World Gold Council (WGC), central banks consecutively net purchased over 600 tons of gold in 2018 and 2019. They net purchased 657 tons in 2018 and 669 tons in 2019. However, due to the impact of the COVID-19 pandemic, last year's net gold purchases dropped significantly to 326 tons, the lowest in 10 years.

Citigroup predicted that if gold prices strengthen, central banks' net gold purchases would recover to 500 tons this year and 540 tons next year. Although this is not comparable to the over 600 tons in 2018 and 2019, it suggests a rapid increase compared to the mere 326 tons last year. HSBC also expects purchase volumes to rise to 375 tons this year and 450 tons next year.

James Steel, HSBC's senior analyst, analyzed that as global trade increases and emerging countries' current accounts improve, their capacity to purchase gold could grow. He also predicted that Middle Eastern oil-producing countries would have increased gold purchasing power thanks to rising oil prices.

According to a survey released by the WGC last month, 20% of central banks responded that they plan to increase their gold holdings by next year.

This content was produced with the assistance of AI translation services.