Gold update: central bank of China buys 23 tons of gold in July

Since the financial crisis, which started around 2009, central banks have been buying gold en masse. Non-Western countries in particular buy gold as “ultimate currency” at the expense of the US dollar. Western countries already own large amounts of gold. For example, America has 67% of its reserves in gold. Germany has invested 66% of its reserves in gold.

Below is an overview of the total net purchases by central banks between 1950 and 2022:

Source: Gold.org

The image above clearly shows that central banks were net sellers of gold in the period from 1968 to 2009. In 1971, the US dollar was decoupled from gold. In the following years, more gold was sold than bought by central banks. Since the financial crisis, this picture has been reversed, with an extra acceleration being seen since 2022.

One of the biggest buyers among central banks is China’s central bank, the People’s Bank of China (PBOC). In mid-2010, the PBOC had gold reserves of 1054 tons. In 2015, China’s gold reserves rose to 1658 tons. Another 5 years later, in 2020, China’s gold reserves consisted of 1950 tons of gold. From 2020 to the end of 2022, no gold was added to the reserves. But from the end of 2022, the PBOC bought gold again from the market.

In 2023, a large amount of gold has been purchased every month. The last purchase was last month. In July, the PBOC bought 23 tons of gold. This brought the total purchase this year to 126 tons of gold and the gold reserves have risen to 2136 tons.

With its gold purchases, China underlines the declining confidence in the US dollar and China is not alone.

Central banks on their way to new record

Central banks bought a record amount of gold in 2022. This year also looks set to be another very strong year with possibly a larger amount than in 2022. In the first 6 months of 2023, central banks bought the largest net amount since the World Gold Council started measuring in 2000.

In the first half of 2023, central banks bought 387 tons of gold. This amount was 274 tons in 2022. The total in 2022 was 1136 tons. The acceleration took place in the third and fourth quarters of 2022. During that period, central banks purchased a net amount of 862 tonnes of gold.

Gold price on the rise since the financial crisis

Since the financial crisis, the gold price has risen from €23.000 per kg to the current level of €56.000 per kg. This equates to a return of more than 8% on average per year. In the short term, the gold price can be volatile. In the long run, gold rises with the growth of the money supply.

The gold price is currently in US dollars at $1.913 per troy ounce. In April of this year, gold almost reached the old record of $2.070 per troy ounce. But this 2020 record was not broken. This seems like a matter of time. The money supply will continue to rise in the coming years and gold will benefit from this.

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