Central Banks Are Quietly Buying Gold at The Fastest Pace in 55 Years

The comments below are an edited and abridged synopsis of an article by Alex Kimani

Central banks globally have been accumulating gold at a pace last seen 55 years ago when the US dollar was still backed by gold. According to the World Gold Council, central banks bought a record 399 tonnes of gold worth around $20 billion in the 3rd quarter of 2022, with global demand for the precious metal back to pre-pandemic levels.

Central Banks Are Quietly Buying Gold at The Fastest Pace in 55 Years - BullionBuzz - Nick's Top Six
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Global retail demand was also strong, amounting to 1,181 tonnes in the September quarter, for 28% Y/Y growth. Among the largest buyers were Turkey, Uzbekistan, Qatar and India. Other central banks also bought a substantial amount of gold, but did not publicly report their purchases. Turkey’s central bank is the largest reported gold buyer this year, adding 31 tonnes; Uzbekistan added 26 tonnes; Qatar added 15 tonnes; and India added 17 tonnes during the quarter.

Retail buying of gold bars and coins also surged in Turkey (46.8 tonnes in the quarter), up more than 300% Y/Y.

This is not surprising considering that gold is still considered the pre-eminent safe asset in times of uncertainty or turmoil, despite the emergence of cryptocurrencies. Gold is also regarded as an effective inflation hedge.

Unfortunately, rising interest rates spoiled the party for gold bulls, with gold ETFs becoming net sellers. Offloading of bullion by ETFs countered buying by central banks, pushing gold down 8% in the 3rd quarter.

However, the long-term outlook for gold is bullish. Markets are currently primed for the 4th 75-basis point hike in a row, after which the Fed is expected to signal that it may reduce the size of its rate hikes.

Inflation in the US remains high, and there are signs that it is beginning to slow the economy. The housing market is slumping, and mortgage rates are climbing. This calls for the Fed to go easy on its aggressive hikes.

Gold traders, however, agree that the long-term gold trajectory is up. According to an industry survey, gold will rebound next year, despite higher interest rates. Expect gold at $1,830 by this time next year.

Finally, a weakening dollar will improve the gold outlook. The dollar is waning after a long period of strength against other currencies, and rate cuts in 2023 should push it into cyclical decline.

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