Central banks as a whole (including Russia and China) purchased 399 metric tonnes of gold in the third quarter of 2022. Fourth quarter data is not yet available. That’s the most gold ever purchased by central banks in a single calendar quarter, and it represents over 1% of all the gold held by all central banks combined. If this pace in gold buying continues or even increases, it will amount to an increase of more than 4% per year in central bank gold reserves. Yet, the total global production of gold has been flat for the past six years. That combination of flat output and increasing demand will put upward pressure on gold prices and will put a floor under gold since central banks tend to be opportunistic buyers and will buy dips, when they appear.
Russia, China and others are using gold as another weapon in the ongoing financial war that surrounds the War in Ukraine. Since Russia and China are among the top five gold producers in the world, they can buy gold from their own mines using local currency. This tactic minimizes their need for dollars since they are paying with money, they print themselves. At the same time, it increases the hard currency value of their own gold because they are depriving world markets of substantial output.
Sven Franssen