Central banks bought 400 tonnes of gold in Q3. Is this really a hidden message for investors?

While the central bank gold buying typically happens behind the scenes, the recent record-high purchases created a stir in the market and raises the question of whether central banks know more.

Judging by their investment performance, we do not believe they know more. Instead, we see their behaviour as sending political statements to Washington, Berlin, or Brussels.

Dating back to the years of the gold standard, the relationship between central banks and gold has always been a special one. Even though some central banks were strong gold sellers after the Bretton Woods system collapsed in the 1970s, gold still accounts for a sizeable share of their reserves, especially in developed countries such as the United States, Germany, and France.

During the past few years, the central banks of developing countries have become major buyers of gold, bringing total gold reserves back to levels last seen in the 1990s, at around 37,000 tonnes. As central bank buying typically happens behind the scenes, it hardly hits the headlines. However, news of recent purchases created a stir in the gold market – not only because of the volume of almost 400 tonnes during the third quarter of this year but also because most of it could not be allocated to a specific central bank.


The only identifiable purchases came from India (17t), Turkey (31t), and Uzbekistan (26t). Russia should be on that list as well, but it has stopped reporting reserves since the start of the war in Ukraine. However, even with the inclusion of Russia, a big gap remains, which raises the question of whether there are central banks that know more about the gold market than other market participants. Judging by the central banks’ track record, it seems unlikely that the central banks know more.
Since 2010, their buying yielded average returns of 4% over one year and around 7% over two years, which is in line with gold’s overall performance. Instead, based on the list of buyers, we see their behaviour rather as sending political statements, especially in times of a more multipolar world.

Furthermore, there is clearly no link between a central bank’s gold reserves and the stability of its currency. Turkey is the most prominent case in point. The stability of a currency is much more reflective of cyclical conditions, as well as the level of trust in the country’s institutions.

(Carsten Menke is Head Next Generation Research at Julius Baer)

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