Central banks have eased back on gold buying, but price may not be why

The anticipation of further interest rate cuts from the Fed and investors loading up on safe havens has seen gold prices surge to record highs recently, but is this why central banks have eased back on buying?

Central banks were buying gold at higher levels in the second quarter of 2024 as a need for portfolio protection and diversification prompted a 6% year-over-year increase to 183 tonnes according to the World Gold Council’s Gold Demand Trends.

At the start of the third quarter, central banks added a net 12 tonnes to their portfolios in July and 37 tonnes in July, but the WGC says that buying slowed in August to a new 8 tonnes.  The net purchases in August came from just four central banks, Poland, Turkey, India, and the Czech Republic.

While prices have been rising for several months, Marissa Salim, a senior research lead at WGC, says that although price performance is not one of the main strategic drivers of central bank gold buying, the upward trend may have influenced their decision to pull back.

“However, it is worth noting that sales have not increased which may signal a likely wait and see approach rather than a change in trend,” Salim wrote in a blog post. “Specially, since all other key drivers of central bank decision making, such as the need for effective diversifiers and gold’s performance in time of risk remain in place.”

WGC is expecting gold to end 2024 positive although at a lower level than 2023. It’s third quarter trends report will be out at the end of October.