Central Banks' Gold Buying Spree Defies Dollar Rally

Central banks around the world have been buying gold at an unprecedented rate, outpacing even the record-breaking purchases in June when the European Central Bank announced that gold had overtaken US Treasuries as the world's single largest reserve asset.

According to the latest data, central banks bought 289 tonnes of gold in the second quarter alone, a fivefold increase from the first quarter. Poland's central bank governor, Adam Glapiński, described this buying spree not as a trade but as insurance against potential risks.

The dollar's autumn recovery may have eased concerns about de-dollarization, but experts argue that currency markets and central-bank reserve committees are pricing two different things on two different clocks. While the dollar's rally is largely cyclical, driven by the new Fed chair and war-driven oil shock, gold buying remains a structural reallocation program with a fixed multi-year target.

Poland's central bank has explicitly stated its goal to hold 700 tonnes of gold, and a World Gold Council survey found that a record 45% of central banks plan to buy more within the next twelve months. The dollar's share of global reserves fell to its lowest level since 1995 in January, while gold's price plummeted by 22% between January and September.

Experts warn that foreign exchange markets are structurally bad at pricing discontinuous, low-probability events, such as a reserve freeze or secondary-sanctions campaign. Central banks' buying pattern suggests they are not chasing momentum but rather hedging against a tail risk that has not yet recurred.