Gold prices have experienced a significant surge in recent years, and the question on many investors' minds is whether this trend will continue. A key factor driving this upward momentum is the increasing gold purchases by central banks around the world.

Central Bank Gold Buying: A Growing Trend

Central banks have been net buyers of gold for over a decade, but the pace of accumulation has accelerated significantly in recent years. According to the World Gold Council, approximately 95% of reserve managers anticipate continued growth in central banks' gold reserves over the next 12 months. This figure marks the highest level since monitoring began in 2019, showing a substantial increase of 17% compared to 2024 results. Some reports indicate that central bank gold buying has increased fivefold since the invasion of Ukraine in 2022.

This trend is particularly pronounced in emerging markets and developing economies (EMDEs), where a significant proportion of central banks anticipate increasing their gold reserves. The primary reasons for this accumulation include:

• Diversification: Central banks are seeking to diversify their reserves away from traditional assets like the U.S. dollar, especially with concerns about the dollar's long-term value and potential risks associated with holding a large portion of reserves in a single currency. A majority of participants (73%) anticipate a reduction in US dollar holdings within global reserves over the next five years.
• Hedge against Uncertainty: Gold is viewed as a safe-haven asset that can preserve value during times of economic and geopolitical instability. With rising global economic uncertainties, trade conflicts, and geopolitical tensions, central banks are turning to gold to mitigate risks.
• Inflation Hedge: Gold is often considered a hedge against inflation, as its value tends to rise during periods of high inflation. Concerns about persistent inflation are prompting central banks to increase their gold holdings.
• Monetary Sovereignty: Gold can provide a degree of monetary sovereignty, as it is not tied to any single nation's monetary policy and functions independently of any government.

Impact on Gold Prices

The consistent and increasing demand from central banks has a significant impact on gold prices. As central banks add to their gold reserves, they reduce the supply of gold available to other investors, which can drive up prices. Some analysts believe that central bank buying is the most significant factor influencing the gold market, and their large-scale buying is expected to continue.

Other Factors Supporting Gold Prices

While central bank buying is a key driver, other factors also support higher gold prices:

• Geopolitical Tensions: Ongoing geopolitical tensions, particularly in regions such as Ukraine and the Middle East, contribute to uncertainty, driving investors toward gold as a safe haven.
• Economic Policies: Inflationary policies and high budget deficits can also support gold prices, as investors seek to protect their wealth from currency debasement.
• Investor Demand: Strong investor demand, particularly from exchange-traded funds (ETFs), can also push gold prices higher. Even a small rotation out of US assets into gold would have a big, positive impact on the gold price given the relative sizes of the markets.

Price Projections

Given these factors, many analysts are optimistic about the outlook for gold prices. Goldman Sachs Research predicts gold will rise to $3,700 a troy ounce by the end of 2025. J.P. Morgan Research expects prices to average $3,675/oz by the final quarter of 2025, rising toward $4,000/oz by the second quarter of 2026.

Conclusion

The confluence of strong central bank demand, geopolitical tensions, economic uncertainties, and investor interest suggests that gold prices may indeed rise further. While short-term volatility is always possible, the long-term outlook for gold remains positive.