After adding gold investments at a pace not seen since the late 1960s, central bank buying is expected to proceed at a rapid clip in 2019 and 2020, an analyst told attendees of the Denver Gold Forum.
Central banks are likely to remain net buyers for many reasons as retail investors also turn to gold, which continues to hover around a six-year high price of US$1,500 per ounce, said Suki Cooper, a precious metals analyst with Standard Chartered Bank. Central bank purchases of gold slowed in the third quarter, but relatively new buyers such as Poland and Hungary are expected to join consistent customers such as Russia as an upward trend in central bank gold buying continues.
"What's been really impressive to me is that the buying we've seen over the last eight years has occurred during a period when we've seen record gold prices," Cooper said Sept. 17. "Over 20 central banks increased their gold holdings over the past two years. And we've seen very few sellers."
The World Gold Council recently noted a 47% year-over-year increase in central bank net purchases in the second quarter. Net purchases in the first half were at the highest level since central banks became net buyers in 2010.
Central banks are supporting a floor for gold prices, likely at around the US$1,450/oz level, Cooper said. Since 2010, annual gold purchases from central banks have accounted for between 2% and 14% of gold purchases.
"The jewelry market and the physical market was weakened, but central bank buying helped to plug some of that back," Cooper said of gold trends in 2018.
Buying gold allows countries to diversify their holdings but also is seen as a guard against trade protectionist policies and geopolitical risk while maintaining the capability for both long-term value storage and short-term liquidity. China is likely to significantly increase its gold purchases in the coming years, Cooper added.
"We're still seeing more upside risk as retail investors come back into the space," Cooper said. "I think that we could see prices continue to trend upwards in 2020."
