Central Banks' Gold Buying Accelerates Amidst Global Uncertainty

Central banks have accumulated an average of 1,000 tonnes of gold per year over the past four years, up from 500 tonnes in the preceding decade. This accelerated pace of accumulation has occurred amidst geopolitical and economic uncertainty. The World Gold Council survey found that central bank reserve managers hold gold for reasons including its performance during times of crisis, portfolio diversification, inflation hedging, and geopolitical risk hedging.

According to data from the International Monetary Fund (IMF), global central banks have been net buyers of gold since the Global Financial Crisis. China is the largest buyer, and Crescat Capital estimates that two-thirds of recent central bank gold buying has gone unreported. Central banks own gold because it serves as a medium of exchange, unit of account, store of value, and standard of deferred payment.

To value gold, we must consider its supply. Gold is scarce, found at only 4 parts per billion in the Earth's crust, with a compound annual growth rate of just 1.5% over the last 113 years. The World Gold Council represents the world's above-ground gold supply as a 22-meter cube, more than four Olympic-sized swimming pools.

Fiat money competes with gold, created at essentially zero marginal cost through central bank asset purchases and loan growth in the government-regulated fractional reserve banking system. The global M2 fiat money supply has been growing at a compounded annual growth rate of 7.0% per year over the last 22 years.