Gold Buying by Emerging Markets Central Banks up Five-Fold Since 2022: Goldman Sachs
Gold demand grows as central banks prepare for economic and political uncertainty
Chennai: Since 2022, gold purchases by central banks of emerging markets have increased five-fold. With emerging markets still having gold as a small portion of their reserves, Goldman Sachs expects that central bank buying will continue to boost gold prices.
Russia's invasion of Ukraine and the freezing of Russia's foreign assets by Western countries in 2022 marked a turning point for central banks as they increased gold purchases. The International Monetary Fund also finds that Central bank gold purchases are meant to hedge against economic uncertainty and sanctions risk.
As per the data of the World Gold Council, the net purchases of central banks, which stood between 255 tonnes and 650 tonnes between 2019 and 2021, more than doubled in the next three years. Between 2022 and 2024, central banks bought a total of 3217 tonnes of gold against 1310 tonnes between 2019 and 2021.
Since 2022, gold purchases by central banks of emerging markets have increased fivefold, according to Goldman Sachs Research. Despite these increased purchases, the share of gold holdings in the forex reserves of developed markets are larger. This is partly because of the legacy of the gold standard era when sovereign money supplies were linked to the commodity.
Gold accounts for 74 per cent of the forex reserves of the US and Germany, 71 per cent of Italy and 72 per cent of France. On the other hand, in the forex reserves of China, gold is just 5 per cent and it is 11 per cent in India. Foreign currencies comprise a higher proportion of emerging market central bank holdings.
Goldman Sachs finds that the global average of roughly 20 per cent is a plausible medium-term target for large emerging central banks. Central bank purchases have been the primary factor driving up gold prices in recent years, along with growing exchange-traded fund (ETF) holdings.
As both compete for the same bullion, Goldman Sachs expects gold prices to rise to $3,700 a troy ounce by the end of 2025.
