Central Banks Buying Gold Could Send Gold Prices Soaring to $3,000/Ounce
Central banks buying gold continues to make the case for owning the yellow precious metal much stronger. It could be a big catalyst that sends gold prices soaring past $3,000 an ounce.
Before going into the current details, let’s go back a little bit.
In 2018, central banks bought record amounts of gold. In 2019, central banks’ buying of gold didn’t ease. In 2020, when the world was going through an economic situation that we haven’t really seen in recent history, central banks still bought the precious metal.
In 2021, central banks’ gold-buying didn’t stop. In 2022, central banks bought even more gold, close to 1,100 tonnes of it, breaking the 2018 record.
Between 2010 and 2022, central banks were net purchasers of the precious metal.
In 2023, central banks’ gold-buying has continued to be robust. In the first three quarters of 2023, central banks bought 800 tonnes of gold! This was 14% higher than in the same period a year ago.
In the third quarter of 2023, central banks purchased 337 tonnes of gold. This was up by 120% quarter-over-quarter, and the second-highest amount they’ve purchased in a third quarter on record. (Source: “Gold Demand Trends Q3 2023,” World Gold Council, October 31, 2023.)
Assuming central banks’ gold-buying continues at its current pace in the fourth quarter, they could beat their 2022 record.
List of Central Banks Buying Gold
Which central banks have been buying gold? It’s primarily been those that didn’t have much to start with.
In the third quarter, the biggest gold buyer was the People’s Bank of China. It purchased 78 tonnes of the precious metal. Year-to-date (as of September 30), the bank bought 181 tonnes of gold bullion. The People’s Bank of China now owns 2,192 tonnes of gold, amounting to four percent of the total reserves. (Source: Ibid.)
The National Bank of Poland bought 57 tonnes of gold in the third quarter and 105 tonnes year-to-date. It currently holds 334 tonnes of gold, equivalent to 11% of the total reserves.
Adam Glapiński, the president of the National Bank of Poland, made some interesting remarks: “This makes Poland a more credible country, we have a better standing in all ratings, we are a very serious partner and we will continue to buy gold. The dream is to reach 20 percent.” (Source: Ibid)
Turkey’s central bank was also a big buyer of gold in the third quarter of this year.
Other central banks that purchased at least one tonne of gold during the third quarter include those of the Czech Republic, India, the Kyrgyz Republic, the Philippines, Qatar, Russia, Singapore, and Uzbekistan.
Central Banks Buying Gold Could Trigger Immense Price Increase
Dear reader, I’ve been talking about central banks buying gold for a while now. That shouldn’t be anything new to my long-term readers.
Here’s the thing, though: it’s becoming very clear from central banks’ actions that they’re hungry for the yellow precious metal, and that the price of gold doesn’t really matter to them.
Central banks were buying immense amounts of gold when gold prices were around $1,200 an ounce. They’ve been buying more of the precious metal since its price rose to about $2,000 an ounce. You could even say central banks are becoming dip buyers. In 2022, the price of gold didn’t do too well, but these banks still bought record amounts of the metal.
I have to wonder, are central banks preparing for something we don’t know? Gold acts as a hedge against uncertainty and a sort of anchor in central banks’ reserves. Are these banks getting ready for some sort of major currency collapse? Or do they think a major financial crisis is brewing, and gold could offer some protection?
Coming back to the investing side of things, I can’t help but see central banks buying gold as an elephant trying to step into a swimming pool. No matter how swiftly the elephant enters the pool, it will displace water.
What I mean is that, by buying a lot of gold, central banks could affect the whole gold market and send gold prices soaring. If central banks keep buying gold, they could send its price to $3,000 an ounce (or higher).
As the outlook for gold prices seems solid, mining stocks are really worth a look. Over the past two years, the share prices of miners have lagged a lot behind the price of gold, but I think this was mainly due to interest rates surging and stock investors not being interested in the precious metal sector.
Since gold prices remain high and could go even higher, I see mining stocks eventually catching a bid and providing immense returns to investors.