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Central banks’ purchases of gold unexpectedly declined 20 per cent last year as investment demand soared, highlighting how funds and private investors have increasingly become the key driver of bullion’s record-breaking rally.
Purchases by central banks and other institutions, such as sovereign wealth funds and government entities, fell to 863.3 tonnes last year, according to industry body the World Gold Council (WGC), as high prices and the swelling value of existing holdings damped demand for further buying by the official sector.
However, investment demand for gold surged 84 per cent to 2,175 tonnes compared with the previous year, driven by exchange traded fund inflows as well as rising demand for gold bars.
“The highlight is definitely investment demand. The lowlight — the one people may be surprised about — is that central bank demand dropped,” said John Reade, market strategist at the WGC. “The drop in central bank demand was completely overshadowed by the increase we have seen in investment demand.”
He added that central bank purchases this year could be as much as “200 or 250 tonnes less” than last year, though with a high range of uncertainty.
Gold prices soared more than 60 per cent last year and have jumped above 20 per cent already this year, passing $5,300 per troy ounce this week, driven by tensions over Greenland and Iran and concerns about rising government debt levels.
Fuelling investment demand was a record $89bn of inflows into gold-backed exchange traded funds last year, according to the WGC data. The overall rise in investment demand more than offset the decline in central bank buying, as well as a decline in jewellery demand, said Reade.
For central banks, many of which are diversifying their holdings away from the US dollar, last year’s purchases were a marked slowdown from the previous three years, when official purchases were more than 1,000 tonnes annually.
Many central banks use a target percentage allocation to manage their gold holdings and have seen the value of their positions jump over the past year, contributing to a slowdown in demand.
Singapore, Russia and Jordan were among the banks that reported selling gold during the period.
Poland was the biggest buyer of gold for the second consecutive year, with 102 tonnes of purchases. Market participants believe China’s buying — much of which goes unreported and is not included in the WGC data — is even higher, once secret purchases are taken into account.
Kazakhstan, Brazil, Azerbaijan and Turkey were also among the top official purchasers last year.
The WGC, which represents mining companies and sponsors the GLD ETF, compiles its demand trends report using data from consultancy Metals Focus.
Data visualisation by Ray Douglas