Central Banks Cut Gold Purchases Amidst Opaque Transactions

Central banks have significantly reduced their gold purchases in recent months, according to a report by the World Gold Council. The WGC initially estimated that central banks bought 244 tonnes of gold in the first quarter, but this figure was revised down to just 57 tonnes.

This represents the lowest level of gold purchases by central banks in over 15 years for a first-quarter period. In contrast, purchases picked up in the second quarter, reaching 289 tonnes, largely due to increased buying from China and Poland. However, overall demand remained low, with central bank purchases at their lowest mid-year level since 2022.

The reduced gold purchases by central banks may be attributed to several factors, including the increasing opacity of gold transactions and the complications arising from US sanctions on Russia in 2022. This led to developing economies diversifying away from the US dollar, resulting in less disclosure to the IMF. Additionally, several Middle Eastern sovereign wealth funds unloaded bullion reserves to offset declines in oil and gas revenue.

Central banks act as a vital component of the gold market's demand, accounting for up to a third of global second-quarter demand. When prices pull back, central bank buying typically absorbs excess supply, providing a price floor for gold. However, with reduced purchasing activity from central banks, this supporting mechanism is beginning to crack.