Central Banks' Gold Buying: Where Do They Source From?

Central banks have driven up gold prices through consistent buying since 2022, with 41% of purchases from historical legacy assets and 32% from the global OTC market. 25% of purchases are from large-scale domestic gold production, while 17% come from artisanal and small-scale domestic gold production. Central banks are on a buying spree, with 43% stating they will increase their gold reserves and 95% believing reserves will continue to increase in the next 12 months.

Central banks have been on a gold-buying spree since 2022, driving up gold prices and signaling a significant shift in global reserve management. According to the World Gold Council, central banks have purchased over 1,000 tonnes of gold each year since 2022, more than doubling the price of gold to over $3,300 per ounce [3]. This trend is driven by a variety of factors, including political and economic uncertainties, and a desire to diversify away from dollar dominance.

The source of these gold purchases is diverse. Forty-one percent of purchases come from historical legacy assets, while 32% are sourced from the global OTC market. Additionally, 25% of purchases are from large-scale domestic gold production, and 17% come from artisanal and small-scale domestic gold production [3]. This diversification in sourcing indicates a strategic approach to gold accumulation.

Moreover, the World Gold Council's 2025 survey reveals that 43% of central banks plan to increase their gold reserves, and 95% believe reserves will continue to increase in the next 12 months [1]. This strong commitment to gold accumulation is a clear indication of the importance central banks place on gold as a reserve asset.

The surge in gold purchases is not just about diversification but also about sovereignty. Central banks are recognizing gold's role as a non-sanctionable, inflation-hedging asset that can insulate economies from geopolitical instability and inflationary pressures [1]. Poland and China, for instance, have significantly increased their gold allocations, with Poland reaching 21% and China becoming the world's sixth-largest gold reserve holder [1].

The gold rally is also supported by supply constraints. Mine production is projected to peak at 3,250 tonnes in 2025, after which output is expected to decline due to depleting reserves and rising costs. Additionally, recycling has fallen due to consumer hoarding, further constraining supply [1]. This supply deficit, combined with strong demand from central banks, has led to a technical buy zone around $3,260–$3,280, with long-term targets as high as $4,000 by mid-2026 [1].

For investors, this gold buying spree presents a strategic opportunity. Gold should form 5–10% of a diversified portfolio to hedge against systemic risk. Investors can gain direct exposure through ETFs like GLD or IAU, or consider physical gold for its liquidity and non-sanctionable status. Mining equities, such as GDX, also offer leverage to rising gold prices [1].

However, investors should be aware of potential risks, including near-term volatility and the possibility of a stronger USD pressuring gold prices. Additionally, supply-side surprises, such as new mine discoveries or policy shifts, could alter supply dynamics [1].

In conclusion, central banks' gold buying spree is a clear indication of a structural shift in global reserve management. This trend is driven by a desire to diversify away from dollar dominance, hedge against political and economic uncertainties, and insulate economies from inflationary pressures. For investors, this presents a strategic opportunity to align portfolios with the new rules of reserve management.

References:
[1] https://www.ainvest.com/news/golden-shift-central-banks-rewriting-rules-reserve-management-investors-follow-suit-2507/
[2] https://www.moomoo.com/news/post/18030450/record-tr4cking-news-buffett-of-the-ai-era-nvidia-from-gaming-gpus-to
[3] https://trt.global/afrika-english/article/08f84420215a