Central banks on gold buying spree could impact prices

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New Delhi: There is a global softness in gold prices, while in the country, gold rates have dropped from record highs. However, there is still volatility. Analysts consider China’s decision to increase gold reserves as one of the reasons for the decline in gold prices. The People’s Bank of China (PBoC) halted gold buying that had been ongoing for 18 months in May. Now, reports suggest that several central banks are planning to increase their gold reserves in 2024. The impact of central banks’ gold purchases on gold prices remains to be seen.

Central Bank Gold Reserves’ survey

According to the recent ‘Central Bank Gold Reserves’ survey by the World Gold Council, 29% of central banks intend to increase their gold reserves over the next 12 months. In the 2023 survey, 24% of central banks expressed a desire to increase their gold reserves. The survey includes 70 central banks worldwide, indicating that central banks may continue buying gold to bolster their reserves.

The primary reason central banks want to increase their gold reserves, according to the survey, is as a hedge against inflation. 88% of banks support this. As inflation rises, purchasing power diminishes, affecting investment returns. Gold is seen as an option to hedge against inflation because its value tends to increase over time. Another major reason for buying gold is its performance during times of crisis. The third reason is gold’s role in portfolio diversification. The fourth reason is that there is no risk of default in gold.

Figures from the World Gold Council show that central banks worldwide purchased 1,037 tons of gold in 2023. This is the second-largest gold purchase made by central banks in a year. In 2022, central banks had bought 1,082 tons of gold.

According to Reserve Bank of India (RBI) figures, India’s gold reserves totaled 822 tons by the end of March 2024, with 408 tons held domestically. At the end of March 2019, the total gold reserves were 612 tons, including 292 tons held domestically. Recently, the RBI had brought back 100 tons of gold from Britain’s treasuries.

World Gold Council’s Regional-

In a recent report, World Gold Council’s Regional CEO Sachin Jain stated that when a central bank buys gold, it is not based on supply and demand but to strengthen its country at any cost. If a country decides to increase its gold reserves, it remains ready to buy gold at any price. So if Central banks continue buying gold, prices could strengthen.

If central banks continue to buy gold, the shine of gold could be maintained. Central bank purchases will increase demand for gold, which could increase prices. On the other hand, the high price of gold forces the common man to stay away from it.