Central banks have eased the pace of their gold purchases recently, with quarterly buying falling about 33% in early 2024. Part of this slowdown reflects reduced activity from some large buyers, including China, but analysts do not view the dip as evidence of a permanent retreat from gold.
Growing doubts about the U.S. dollar’s role as the dominant reserve currency continue to support demand for gold. Sanctions and geopolitical tensions have encouraged some countries to diversify away from dollar-denominated assets, increasing interest in alternative stores of value such as bullion.
In 2024 gold overtook the euro to become the world’s second-largest reserve asset and has gained more than 25% year-to-date. Even with a recent moderation in buying, many experts expect central banks to maintain gold in their reserves because it helps hedge against inflation, economic uncertainty, and political risk.
The global supply of newly mined gold is limited, and when combined with persistent institutional demand, those fundamentals can sustain upward pressure on prices. While the pace of purchases may slow from the highs seen over the past few years, the combination of constrained supply and continued diversification by official holders suggests that gold could remain an attractive reserve asset and portfolio diversifier for the foreseeable future.
Overall, the short-term reduction in central bank buying appears to be a temporary adjustment rather than a reversal of the trend toward greater gold holdings. With ongoing macroeconomic concerns and shifting reserve strategies, gold’s role in central bank portfolios is likely to stay significant even if purchases ebb and flow.