Central banks pile into gold as China leads buying spree

Central banks purchased an estimated 79 tonnes of gold in August, nearly five times their usual monthly average, as China spearheaded a buying surge driven by efforts to diversify reserves away from the US dollar, according to Goldman Sachs. Sales surged from 44 tonnes in July and significantly surpassed the pre-2022 monthly average of 17 tonnes.

Goldman identified China as the biggest purchaser, accounting for approximately 25 tonnes of August’s total. Rick Kanda, managing director of The Gold Bullion Company, noted that central banks are increasingly viewing gold as a strategic asset, a means of diversifying reserves and safeguarding against economic and geopolitical uncertainties.

The rise highlights a fundamental shift in how global reserves are managed, enhancing gold’s appeal beyond its traditional role as a safe-haven investment. Central banks, especially in emerging markets, have augmented their holdings to mitigate exposure to dollar-denominated assets and potential financial sanctions. Goldman’s estimates suggest Chinese demand exceeds official figures, which typically lag behind actual transactions.

The People’s Bank of China (PBOC) reported adding around 20 tonnes in August, continuing a purchasing streak that lasted nearly two years. Goldman calculates monthly demand using trade and flow data, surpassing reported purchases and subject to revisions. China’s gold accumulation signifies a broader reassessment of reserve safety following Western governments' decision to freeze Russian assets following Moscow’s 2022 invasion of Ukraine.

Kanda believes central banks are moving beyond gold’s traditional safe-haven appeal, increasingly utilizing it to reduce reliance on the US dollar. China’s significant purchases in September marked its 23rd consecutive month of buying. Prices could benefit if central bank purchases persist, providing a long-term foundation for gold prices, particularly when institutional investors reduce exposure through exchange-traded funds or speculative positions.

However, sustained central bank buying does not ensure further gains, as interest rates, investor confidence, and geopolitical developments also affect bullion prices, potentially offsetting the impact of official purchases. The durability of this support depends on whether central banks continue accumulating gold as part of their reserve strategies, even when higher prices make additional purchases more costly.