Central Banks' Gold Buying Potential Exceeds 20,000 Tons

Bank of America's commodities team has projected that if central banks continue to increase their gold reserves, demand for gold could exceed 20,000 tons. This potential demand is based on the bank's efficient reserve allocation model, which assesses institutions with low gold weightings raising their allocations as a supportive factor for prices.

The rise in annual purchase volumes above 1,000 tons since Russia's invasion of Ukraine in February 2022 has been a primary factor supporting gold's strong rally over the past three years. According to BofA, the additional gold required to reach a 30% threshold in total reserve assets comes in at just under 2,300 tons, equivalent to roughly two years of demand at the current pace of buying.

However, when institutions with gold shares already at or above 30% are excluded from the calculation, the picture changes dramatically. The bank calculates that the remaining central banks would need to purchase approximately 20,333 tons of gold to reach the target. This amount points to a demand potential exceeding 20 years, given the pace of buying in recent years.

China stands out as the country with the highest purchase potential, estimated at approximately 5,628 more tons of gold to raise its share of reserves to 30%. Japan and Switzerland follow closely behind. Turkey has been the top buyer since March 2022, purchasing 815 tons of gold during this period.