Author: Eddie Spence
Article: Original article
Publication date: Tuesday, November 1, 2022
A record amount of gold was bought by central banks last quarter as they diversified their foreign exchange reserves, at the same time, most of the purchases fell on yet unknown buyers.
According to the World Gold Council (WGC), central banks bought almost 400 tons of gold in the third quarter, which is more than four times higher than last year's figure. Thus, the total amount of purchases this year reached its highest level since 1967, when the dollar was still gold-backed.
The price of gold has been under pressure this year from aggressively raising interest rates in the US as the Federal Reserve battles rising inflation, which has prompted investors to sell assets that do not generate interest income. However, support for gold has come from other areas, such as retail buyers in Asia and central banks.
Recent buyers have included the central banks of Turkey and Qatar, as well as unregistered purchases, which, according to the WGC, constitute a "substantial" amount. Not all countries regularly report their purchases of gold, including such large ones as China and Russia.
The quarterly report of the WGC reports that not all official institutions provide information about their gold reserves to the public, or sometimes do it with a delay. Further unreported purchases cannot be excluded.
The council’s expectations are associated with total investment in gold to decline this year, as declines in gold ETFs and over-the-counter demand exceed active retail purchases.
Gnanasekar Thiagarajan, director at Commtrendz Risk Management Services, said that despite the high demand, gold prices mainly depend on external factors such as macroeconomic sentiment and the US dollar rate. He added that the precious metal is now under pressure ahead of the Federal Reserve's announcement on Wednesday.
After the Fed meeting, the gold price is likely to move up. And in general, the completion of the active cycle of tightening monetary policy by global regulators will have a positive impact on the prospects of gold in the coming months.