An Increase in Q3 2023’s Gold Demand by Central Banks Amid Global Instability

Throughout this year’s third quarter, central banks worldwide showcased their continuing strong desire for gold. They purchased an overall total of 337 metric tons, as shown by the Q3 report from the World Gold Council (WGC). The regularity of this form of activity from central banks suggests an ongoing, significant demand for gold that is likely to lead to 2023 ending on a high note.

Central Banks Enhance Gold Reserves Amid Economic Transformation

While this year’s third-quarter figure of 337 metric tons of gold doesn’t break the record set in 2022’s third quarter, it has indeed led to a new total high for year-to-date purchases, which now stand at 800 metric tons. The consistency of central bank activity indicates the continued demand for gold, which may result in another robust year-end total for 2023.

During one Friday of the report period, the per-ounce gold price peaked at $2,002 but has since dipped under the $2,000 threshold. Over the previous month, gold’s value increased by more than 9% compared to the US dollar, and by 22% year-on-year. Central bank purchases have emerged as a significant part of gold demand, according to the WGC report.

Increased Gold Demand Exceeds Five-Year Average Despite Year-On-Year Drop

Excluding over-the-counter transactions from consideration, the gold demand in the third quarter was 8% more than its five-year average, despite the year-over-year drop of 6%, totaling 1,147 metric tons. If you factor in over-the-counter transactions and stock flows, the overall demand rose by 6% from last year and reached 1,267 metric tons.

The third-quarter gold investment demand stood at 157 metric tons, marking a rise of 56% year-on-year. However, this figure was lower than the five-year average of 315 metric tons. Despite the quarter witnessed a significant 139-metric ton drop in global gold exchange-traded fund holdings, this decline was less prominent than last year’s 244 metric tons during the same period.

A senior markets analyst at the WGC, Louise Street, explained that despite a strong US dollar and high-interest rates, gold’s demand has been holding strong throughout the year. The demand for gold this quarter was notably healthy, especially when compared to the five-year average.

From October 2023, amid the increasing tensions in Israel, we’ve seen a surge in the value of precious metals and bitcoin due to the growing financial instability. Over the last month, an appreciation of 9.4% was seen in gold, and a whopping 25% surge in bitcoin’s value. Wrapping up the week’s trading, US stocks showcased their resilience as Treasury yields pulled back, leading to all four main indices ending Friday positively.

We want to hear your thoughts about the central bank gold demand in Q3 2023. Don’t hesitate to share your views below.

Frequently asked Questions

1. Why has there been a surge in gold demand by central banks in Q3?

Central banks have been increasing their gold purchases in response to global unrest and uncertainties in the financial markets. Gold is seen as a safe haven asset, providing stability and acting as a hedge against inflation and currency fluctuations during times of geopolitical tensions.

2. Which countries’ central banks have shown the highest increase in gold demand during this period?

Several central banks worldwide have displayed a notable surge in gold demand during Q3. Among them, prominent examples include Russia, China, and Turkey. These countries have been actively diversifying their reserves and reducing their reliance on the US dollar, thus driving the significant increase in gold purchases.

3. How does global unrest influence gold demand?

Global unrest creates an atmosphere of uncertainty and volatility, prompting central banks to seek safe assets like gold. During periods of geopolitical tensions or economic crises, investors and central banks view gold as a reliable store of value that can protect against economic downturns and preserve wealth.

4. What are the advantages of central banks increasing their gold reserves?

By increasing their gold reserves, central banks can potentially enhance their financial stability and reduce dependency on other currencies. Gold holdings provide a reliable hedge against inflation, diversify their asset portfolio, and offer stability during times of economic instability or currency devaluation.

5. How does the surge in gold demand impact the price of gold?

Increased gold demand from central banks can put upward pressure on gold prices. With a significant spike in purchases, the demand-supply dynamics shift, leading to higher prices in the global gold market. This surge in demand can also influence investor sentiment, further driving up prices.

6. Is the surge in gold demand by central banks a temporary response to current unrest, or a long-term trend?

While the surge in gold demand is partly a response to the current global unrest, it also reflects a growing long-term trend among central banks to diversify their reserves. The desire to reduce exposure to specific currencies and geopolitical risks suggests that the increase in gold purchases is likely to continue beyond the immediate unrest.

7. What impact does central bank gold buying have on the global economy?

Central bank gold buying has multiple effects on the global economy. Firstly, increased demand for gold supports the overall price of the precious metal, benefiting gold-producing countries and potentially boosting their economies. Secondly, it signals a lack of confidence in certain currencies, which can have ripple effects on currency markets and international trade dynamics. Finally, it reinforces gold’s status as a trusted and valued asset, solidifying its role in global finance.