According to the latest data from the World Gold Council (WGC), central banks, led by China, reduced their gold purchases in the three months to September but appear to be on track for another near-record performance in 2023.
The WGC estimated that the overall official sector buying amounted to 337 tonnes for the three months, marking the third strongest quarter for central bank purchases. This comes on top of the 387 tonnes acquired during the first six months of the year, a record for the January-June period, thanks in large part to strong buying in the first three months.
While the September quarter's total exceeded that of the June quarter, it was down 27% compared to the same quarter in 2022 when central bank purchases reached a record 458 tonnes. The WGC attributed this decline to the inclusion of previously unreported central bank purchases in 2022.
In its quarterly report, the WGC revealed that central banks have acquired 800 tonnes of gold in the first three quarters of 2023, a 14% increase from the same period in 2022, which was the previous high for a nine-month period. Despite the slowdown compared to the previous year, WGC analysts, led by John Reade, the council's chief market strategist, anticipate that annual total official gold purchases will "approach or exceed" last year's 1,081 tonnes by the end of December.
Analysts believe that central banks are purchasing gold as a hedge against inflation and to reduce their reliance on the US dollar, despite the irony that they are effectively converting US dollars to gold, which is priced and traded in the American currency.
The data from the WGC indicates that high gold prices, around $1,900 an ounce or higher, have a noticeable impact on demand, buying, investment, production, recycling, and gold-backed ETFs.
The increase in central bank buying in September has supported gold prices, especially when they dipped below $1,900 an ounce. Gold prices recently regained the $2,000 level in late October for the first time since late July, briefly dipping below $2,000 at the end of October.
Central banks have continued to buy gold despite the stronger US dollar and rising bond yields, particularly in the US market, where the yield on 10-year Treasuries has been around 4.8% and briefly exceeded 5% in late October. In some countries, central banks are closely tied to the government, as is the case in Turkey and China.
The People's Bank of China has reportedly acquired 181 tonnes of gold so far in 2023, including 78 tonnes in the September quarter, bringing its gold holdings to 4% of its reserves. Poland and Turkey followed as the next largest buyers in the third quarter, with 57 and 39 tonnes, respectively, while eight other central banks purchased more than 1 tonne each.
The rapid pace of central bank buying has surprised market analysts, including the WGC, who had expected a decrease in purchases after last year's all-time high.
Overall, gold demand, excluding bilateral over-the-counter flows, was 6% weaker year-on-year in the quarter, totaling 1,147 tonnes. Investment demand increased by 56% year-on-year to 156.9 tonnes for the third quarter but remained below the five-year average of 315 tonnes. This suggests that gold is no longer regarded as a primary store of value or safe haven for investors in desperate times.
Bar and coin demand declined by 14% to 296.2 tonnes in the quarter compared to the same quarter in 2022, although it remained on par with levels seen in the previous year, which was the strongest year in nearly a decade, partly due to the Russian invasion of Ukraine.
High gold prices also led to reduced demand for gold jewelry, with global demand at approximately 516.2 tonnes in the third quarter, a 2% decrease year-on-year, although year-to-date volumes remained consistent at 1,462 tonnes. The high gold price also contributed to an 8% increase in recycling to 289 tonnes compared to the previous year.
