While central banks invest in a number of assets, including equities and asset-backed securities, gold has been a growing focus — and their approach to buying it could influence its future availability and prices, according to Kevin DeMeritt, founder and chairman of Los Angeles-based precious metals firm Lear Capital.
As the entity that’s tasked with managing countries’ money supply, gold can potentially help central banks support financial and economic stability.
Gold’s historical position, performance during times of crisis, and status as an inflationary hedge and long-term store of value are the top three reasons the banks are interested in the metal, according to a World Gold Council survey.
“It makes sense,” Kevin DeMeritt says. “They want to hedge against inflation. They get to hold gold, and that’s going to offset some of the inflation pressure on paper debt they hold.”
Banks’ Buying Habits
About half of central banks say they purchase gold on the global OTC market. Good delivery bars — which have specific purity and weight standards — are the most frequent format, with 85% of banks reporting they purchased gold in that form in 2022, compared to just 11% who purchased doré, unrefined bars comprising gold and other metals recovered from an ore body.
Since 2009, central banks have stepped up their gold buying. The precious metal accounted for roughly 10% of all central bank foreign exchange assets by 2018, according to Official Monetary and Financial Institutions Forum data.
Government bonds increasingly became less of an investment focus for the banks between 2016 and 2021, a time period that led up to massive purchasing in 2022. Central banks bought 152% more gold that year than in 2021 — their highest purchasing level since 1950.
“Central banks entered the market in 2022,” Kevin DeMeritt says. “They purchased a quarter of all the mining supply, which is a huge jump from [their previous activity].”
In 2023, banks’ gold buying “maintained a breakneck pace,” according to the World Gold Council; their annual net purchases of the metal came close to the 2022 high.
This year, the central bank-related demand for gold seems to be significant.
In January 2024 — which marked their eighth consecutive month of gold purchases — according to a WGC analysis, the central bank of Turkey led the pack by adding 12 tons to its 540-ton holdings. The People’s Bank of China bought 10 tons, bringing its total to 2,245 tons — a nearly 300-ton increase since October 2022, when the bank again began reporting it was purchasing gold.
The Reserve Bank of India’s purchasing, 9 tons, was the third-largest amount; other banks — including the National Bank of Kazakhstan, the Central Bank of Jordan and the Czech National Bank — also each added between 2 and 6 tons of gold.
Perhaps even more notably, central banks’ selling activity was far from robust in January. The only significant sale involved the Central Bank of Russia reducing its reserves by 3 tons — a move the country has repeatedly made (before then replenishing the amount) since 2021, according to the World Gold Council.
Based on January’s buying, the organization reiterated its prediction that 2024 “will be another solid year of central bank gold demand.”
“We have not seen this kind of buying from central banks for 50 years,” Kevin DeMeritt states. “That trend is going to continue to get more intense.”
Given the way central banks treat the asset, an increase in their gold buying habits could eventually equate to a reduction in the available supply of gold.
“They hold that metal for 10, 15, 20 years at a time,” Kevin DeMeritt says. “That metal is gone [from the market] — and you’re not talking about small amounts here.”
Embracing Banks’ Metals Mindset
Gold can offer individual investors a similar value proposition. As part of a self-directed individual retirement account, it can help buffer inflation and, based on its historical performance, potentially offset losses from volatile assets that may be more affected by economic and other factors.
Richard H., for instance, said in one of the Lear Capital reviews shared on Google that he and his spouse decided to transition from a traditional IRA to invest in gold and silver.
“My wife and I were looking for an investment strategy to help us protect our retirement assets against the impending inflation and devaluing of the dollar,” he said. “We reached out to Lear Capital. We were pleased with the information we received. The process was very smooth and quick, and we are now precious metal investors.”
George J. said in a Lear Capital review on Google that he found the company’s assistance helpful when he was purchasing precious metals.
“I recently established a precious metals IRA … and found the process easy,” he wrote. “[I’m] looking forward to doing continued business with this company, and to the hedge that precious metals will provide for my portfolio.”
Xavi V. echoed George’s sentiment, writing in one of the Google Lear Capital reviews that working with the company was an “easy way to buy gold,” which he said just involved “one call, a couple of minutes, going to the bank, wiring the money [and] a few days later, the gold [was received] — simple.”
Another investor, John O., gave the company a five-star rating in one of the Lear Capital reviews on Google.
“My adviser told me to add some metals to my portfolio,” John said. “Lear and their team made [the] purchase seamless.”
After obtaining information about purchasing precious metals from Lear Capital, Lauren W. took a week to contemplate her options. Lauren says she appreciated not having to deal with the high-pressure sales tactics she experienced when speaking with other companies.
“I called Lear with the intent of diversifying my investments,” she said in one of the Lear Capital reviews on Google. “We discussed a few different options, and I decided to roll over my traditional IRA into a precious metals-backed IRA of both gold and silver. The process was painless and Lear took care of all the details. I feel much better having diversified my retirement plans, and I owe it to these guys.”
