Central banks will buy 20% of the gold supply this year

One-fifth of the world's supply of gold Disappears this year in vaults of central banks. In the first three quarters of this year, central banks worldwide bought 547.5 tonnes of gold, according to figures from the World Gold Council. That's up from the record 490.7 tonnes in the same period last year. So we are heading for another record year.

More and more countries are expanding their gold reserves to diversify and protect against geopolitical risk. According to Goldman Sachs commodities analyst Jeffrey Currie, gold is currently more attractive than bonds. According to him, the precious metal offers protection against the effects of de-dollarization, unlike bonds.

"Central bank de-dollarization — the demand for gold among central banks is at its highest level since the Nixon era — is taking a 20% bite out of the global supply of gold. I find the precious metal more attractive than bonds because bonds don't reflect de-dollarization.

Gold cannot be used to completely replace government bonds in the portfolio, but the reasons to convert part of the bond portfolio to gold are stronger than ever. We still see upside potential as the economic cycle draws to a close and political uncertainty supports gold demand."

Central banks are buying more and more gold

Central banks have been adding gold to their stocks since the outbreak of the financial crisis. Not only have they been buying more and more gold in recent years, but more countries are also withdrawing their gold reserves from New York and London. This trend is emblematic of declining confidence in the monetary system and rising geopolitical tensions.

The last time central banks withdrew so much gold was prior to the collapse of the Bretton Woods system. Due to growing concerns about the convertibility of the dollar, several European countries decided to convert dollar reserves to gold at the time.

Gold price to $1,600

Not only central banks are hoarding gold, private individuals are also seeking refuge in the precious metal. Goldman Sachs analysts advise clients to buy gold diversification of long-term bonds. Government bonds traditionally have a reputation as a safe haven, but due to low interest rates, this asset class is no longer yielding almost anything. Corporate bonds are more profitable, but also have a higher risk profile.

Due to a flight to precious metals, the Gold price has risen sharply over the past year. In September, the price in euros even reached a new all-time high. Since then, the share price has fallen a few percent. According to Goldman Sachs, the price decline of the past two months may continue for a while, but for next year, the bank is sticking to a higher price target of $1,600 per troy ounce.

Central banks are buying record amounts of gold this year (Source: World Gold Council)

Central banks have been adding precious metals to their reserves since the crisis (Source: World Gold Council)

Gold purchases spread over the year (Source: World Gold Council)