Central Banks Are Buying Gold Again, Global Reserves Are Starting to Shift

Global central banks again recorded net purchases of gold in April, after having made net sales in March. (Illustration: Yicai Global)

JAKARTA - World central banks have resumed buying gold in April. The total net purchase reached 17 tons, after a net sale of almost 30 tons in March.

Quoted from a report by Yicai Global, Saturday, June 6, the sell-off in March was partly triggered by large sales by Turkey. However, in April, the central bank's interest in gold rose again.

Poland is the largest buyer. Based on data from the World Gold Council released on June 3, the country bought 14 tons of gold net in just one month. Throughout this year, Poland has added 45 tons of gold. Now, gold accounts for about 30 percent of the country's total reserves.

China is also continuing to add to its gold reserves. The Chinese central bank bought around eight tons in April. It was the 18th consecutive month of purchases. The figure was also the second largest monthly increase since the People's Bank of China resumed buying gold in November 2024.

Russia took a different direction. The country released six tons of gold in April. This was Russia's net sale for the fourth consecutive month. Turkey, which had previously sold a lot of gold, began to stabilize its reserves after completing a short-term swap contract in April. A swap is an exchange transaction of assets or financial obligations over a certain period.

Major changes are seen in the composition of global reserves. According to a report by the European Central Bank released on June 2, gold accounted for 27 percent of global official reserves at the end of last year. The share has surpassed US government bonds or US Treasuries, which fell to 22 percent.

In other words, gold is now the largest asset in global official reserves. This is not just news for gold traders. This is a signal that the composition of the world's official reserves is changing.

The report said that the purchase of gold by developing countries such as China, Poland, Turkey, and India, has also changed the global reserve map. The rise in gold prices has also increased its share in official reserves.

However, gold does not always move smoothly. The price briefly touched a record high of USD5,598.75 per ounce in January. After the US-Iran war broke out, prices fell by about USD1,000. In the past month, gold prices have been moving in the range of USD4,500 per ounce.

According to a report by Yicai Global, a number of financial institutions such as Morgan Stanley, ANZ, and Citibank are starting to be cautious. They expressed a bearish view of gold and cut price forecasts. Bearish means market participants expect prices to tend to fall or weaken.

Morgan Stanley lowered its gold price target for the second half of this year to USD5,200 per ounce from USD5,700 per ounce. The New York-based investment bank assessed that higher real interest rates, geopolitical tensions, and the Federal Reserve's delayed interest rate cuts made gold again sensitive to real yields. Real yields are investment yields after inflation is subtracted.

On the other hand, Saxo Bank sees gold still having a strong place. In a report released on June 3, the Danish bank said the conflict in Ukraine and the Middle East strengthened gold's role as a strategic reserve asset.

The risk of sanctions, concerns over fiscal sustainability, the need for diversification of reserves, and the risk of long-term currency weakening make central banks reduce their dependence on traditional reserve assets.

Saxo Bank expects global central banks will still be net buyers of gold in the next year. For the market, gold prices may rise and fall, but central banks do not seem to have finished filling the vault.