China has led record global central bank purchases of gold in the first nine months of the year as countries seek to hedge against inflation and reduce their dependence on the dollar.
Central banks bought 800 tonnes in the first nine months of the year, up 14 per cent on the same period last year, according to a report by the World Gold Council, an industry group.
The “voracious” buying has helped gold prices defy rising bond yields and a strong dollar to trade just below $2,000 a troy ounce.
Rising consumer prices and depreciating currencies in many markets have triggered a rush to gold as a store of value, while the yellow metal has also historically been held when global inflation rises.
The rush to gold by central banks is also being driven by countries’ desire to reduce their reliance on the US dollar as a reserve currency after Washington weaponised the greenback in its sanctions against Russia.
China has stood out as the biggest buyer of gold this year, part of an 11-month buying streak. The People’s Bank of China has reported buying 181 tonnes this year, taking its gold holdings to 4 per cent of its reserves.
Poland, with 57 tonnes, and Turkey, with 39 tonnes, followed as the next largest buyers in the third quarter. A further eight banks bought more than 1 tonne.
The continued rapid pace of central bank buying has surprised market analysts, who had expected a slowdown in purchases from last year’s record levels.
These concerns will have been fuelled by the conflict in the Middle East between Hamas and Israel, which has seen the safe-haven rally almost 10 per cent in 16 days.
John Reade, chief market strategist at the WGC, said he expected the annual total of official gold purchases to be “close to or above” last year’s 1,081 tonnes.
Central banks report gold purchases to the IMF, but global flows of the yellow metal suggest that the real level of purchases by official financial institutions – especially China and Russia – was far higher than officially reported.
The WGC estimated that central bank purchases in the third quarter were 129 tonnes higher than officially reported, bringing total official sector purchases to 337 tonnes. The total was more than double that of the previous quarter, but 27 per cent lower than the same period a year ago.
In August, BMO analysts wrote that their analysis suggested that private and central bank gold holdings in China were “significantly higher than annual consumer demand and official purchases would suggest”.
The Chinese central bank’s gold purchases, along with a weak renminbi, a lacklustre local stock market and a troubled property sector, have also encouraged the country’s consumers to rush out and buy bullion to store their wealth.
These factors have helped to keep gold not far from its all-time high of $2,072 a troy ounce, despite investors’ growing belief that the US Federal Reserve will keep interest rates “higher for longer”. This led to $8 billion of outflows from gold-backed ETFs in the third quarter.
Overall, excluding bilateral over-the-counter flows, gold demand was 6 per cent lower year-on-year at 1,147 tonnes.
