Why Are Central Banks Buying Gold So Relentlessly?

General estimates suggest gold has been prized as a store of value and rock-solid (no pun intended) medium of exchange for roughly 5,000 years. Some might think that by the 21st century a shiny rock would have long outlived its usefulness as a monetary asset. Not central banks. Gold purchases by the world’s central banks remain among their highest levels in history. And a fresh update on central bank gold demand from the World Gold Council suggests the yellow metal may very well be here to stay as a core asset of the institutions’ critical reserves—and potentially implies they could serve a useful role as a part of investor portfolios.

As it turns out, central banks have been net purchasers of gold for each of the last 15 years, dating back to the midst of the global financial crisis.

Pretty impressive for a relic. But it’s even more impressive than that. Since 2022, central bank demand for gold has been at or near its all-time highest levels.

In other words, at this point in the history of the world and the history of the world’s economies, many of the globe’s most influential and powerful financial institutions are relying on gold to help make sure the ships they guide run straight and true.

In 2022, central banks bought more gold than in any year up to that point. And in 2023, they bought almost as much gold as they did the year before.

Heading into 2024, experts … including those at the World Gold Council … were expecting a more subdued year of gold demand among central banks after the voracious appetite displayed in the two previous calendar years.

It didn’t happen.

Annual Central Bank Gold Demand Tops 1,000 Metric Tons for Third Straight Year

According to the council’s just-published 2024 Gold Demand Trends report, central bank gold demand last year came in just slightly below 2023’s total, making 2024 the third-highest year in history for gold demand among central banks.[1]

Notably, 2024 also marked the third consecutive year that annual gold demand among central banks topped 1,000 metric tons.[1]

In the context of all that’s going on in the world these days, it’s difficult to overstate just how compelling a message is being sent by modern central banks about the importance of not only ensuring that portfolios are appropriately diversified, but the potential value of gold in accomplishing that goal.

This week, we’re going to take a closer look at that message through a review of the latest Gold Demand Trends report. By the time we’re done, we’ll better understand the inspired relationship central banks now seem to have with the world’s oldest asset, and we’ll see if we can get an idea of the expectations for future central bank gold demand.

In the process, we’ll also see if there are any lessons individual investors — including retirement savers and gold IRA owners — can glean from central banks’ (relatively) newfound passion for gold.

Multiple Drivers at the Root of Central Bank Gold Demand

Gold reached a new all-time high 40 separate times last year. But as it turns out, soaring prices did not dissuade central banks from a third consecutive year of near-frantic gold accumulation.

Central bank gold demand landed at 1,045 metric tons last year … not terribly far off the 1,080-metric-tons pace set in 2022 or the 1,050-metric-tons pace set the year after. Last year’s total was even more impressive considering analysts at the World Gold Council said at the outset of 2024 that a third straight year of demand at or above 1,000 metric tons would be “unlikely.”[2]

To put into perspective just how relentless the purchase pace of central banks has been these last few years, note that from 2010 through 2021, annual gold demand averaged a much lower 473 metric tons.[1]

Gold clearly finds itself in the warm embrace of central banks these days.

But why? Why are central banks buying so much gold right now?

According to experts, one prominent reason is to diversify their reserves away from the U.S. dollar, specifically. As the world’s reserve currency for the last eight decades, the dollar has largely been the default medium of exchange to settle international transactions between countries. But that status as primary reserve currency gives the issuer of the dollar … Uncle Sam, of course … a great deal of leverage to enforce sanctions against nations deemed sufficiently out of step with America’s foreign policy agenda.

Of particular concern to many nations is not simply America’s ability to initiate dollar-based sanctions, but its enthusiasm to do so; astonishingly, roughly one-third of all the world’s countries are under U.S. sanctions, currently.

That’s a big deal to a lot of central banks. Especially those of a non-Western orientation, which are more likely to find themselves out of favor with the U.S. over policy issues. Experts have suggested it’s no coincidence that the tremendous acceleration in central bank gold demand began in 2022, when roughly half — $300 billion — of Russia’s foreign reserves were frozen by the U.S. and other Western nations as punishment for Moscow’s invasion of Ukraine.

But an effort at increasing exposure to gold … a politically neutral asset that carries effectively no counterparty risk … for the express purpose of lowering exposure to the dollar is by no means the only reason central banks are stockpiling so much gold.

In fact, the single biggest central bank buyer of gold in 2024 was Poland, a nation that is considered to have an exceptionally good relationship with the U.S. and has itself advocated for the strongest sanctions against Russia over its invasion of Ukraine.

How Has Gold “Improved the Financial Security of Poland”?

Poland likely has little interest in diversifying away from the dollar. But the country sees something else in gold besides a dollar alternative: an asset that has the potential to serve as an economic bulwark for the nation at a time when there’s a great deal of concern about the potential impacts of economic, fiscal, and, particularly in the case of Eastern Europe, geopolitical instability.

As Adam Glapinski, governor of the National Bank of Poland, said last year:

The purchases of gold conducted by NBP (National Bank of Poland) have not only increased the prestige of the Polish central bank, but also improved the financial security of Poland, which is particularly important in the face of the current tense geopolitical situation.[3]

Concerns about maintaining stability in the face of geopolitical distress is much more than a talking point for many nations around the world. Poland sees itself as one of those nations, as does the Czech Republic and Hungary, whose central banks also were among the top 10 buyers of gold in 2024.

“Striving for a sense of security is a powerful motive in a region that’s been ravaged by Europe’s wars of the past — and that now finds itself next door to the continent’s deadliest conflict since World War II,” Bloomberg said recently about the uptick in central bank gold demand among nations in Eastern Europe.[4]

Aside from acute geopolitical concerns, central banks have plenty of other macroeconomic-based concerns with which they have to contend in managing reserves, including inflation and volatility in financial markets.

“We need to reduce volatility,” says Ales Michl, governor of the Czech National Bank. “And for that, we need an asset with zero correlation to stocks, and that asset is gold.”[4]

Three Biggest Reasons for Central Bank Gold-Buying

As it turns out, it’s reasonable to conclude that much of the impetus for the significant levels of central bank gold demand is just what the institutions said it is in the World Gold Council’s 2024 Central Bank Gold Reserves Survey. According to that research, the three biggest reasons why central banks are buying gold are:

• Long-term store of value / inflation hedge.

• Performance during times of crisis.

• Effective portfolio diversifier.

In other words, central bankers ultimately attribute the reasons for their hypersonic levels of gold buying to the tried-and-true, safe-haven-based factors that have driven gold investment for so long.

And it seems, coming off a third straight year of 1,000-metric-ton-plus gold demand, that observers are expecting 2025 to be more of the same.

Let’s talk more about that, including what it might say about central bankers’ expectations of the global economic condition, going forward.

Central Banks’ Gold Appetite “Shows No Sign of Being Quelled” Says World Gold Council

“Central banks have been net buyers for the last 15 years,” the World Gold Council says in its 2024 Gold Demand Trends report, “yet their hunger for gold shows no sign of being quelled.”

“No sign of being quelled” not just because of how strong central banks’ gold demand has been for the previous three calendar years; but also because there’s “no sign” that the general conditions of heightened uncertainty under which central banks have felt compelled to consume gold at record pace are diminishing.

“Having positively surprised for three years in a row, there’s more evidence that supports the idea that central banks can repeat again their 1,000t-plus net buying in 2025,” the council notes in the report, going on to clarify:

We believe that armed conflict giving way to global trade and economic conflict may support central banks’ net buying trend.

That seems logical; we certainly know it has supported gold’s price. Since President Trump announced a slew of tariff initiatives on February 1, the price of gold has climbed roughly 3%. Year to date, the metal is up 11%.

And while not making a performance projection, per se, analysts such as World Gold Council senior market strategist Joe Cavatoni expect the especially delicate global economic environment to remain highly supportive of gold.

“As we continue through the first half of 2025, the gold market will be influenced by macroeconomic dynamics, particularly in the U.S.,” Cavatoni told MarketWatch on February 4. “The new Trump administration adds uncertainty around monetary, fiscal and trade policies, each with significant implication for gold as a strategic asset.”[5]

“Use Cases for Holding Gold Are Clear and Understood”

Three days later, Cavatoni told Kitco News he didn’t see gold’s recent price rally dissuading central banks from maintaining their relentless pace of gold consumption, given the relevance of key pro-gold dynamics right now.

“The use cases for holding gold are clear and understood,” Cavatoni said. “When we look at central bank demand, their rationalization for owning gold remains very strong. The growing government debt burdens and the dramatically changing geopolitical landscape suggest that central banks will continue to buy gold.”[6]

How Can You Add Gold to Your Retirement Savings?

As for individual investors, those who believe central banks may be on to something in their vigorous pursuit of gold will be pleased to learn how easy it is to access high-quality precious metals.

You don’t need to be a central bank or any other major financial institution to safely and securely buy physical gold and silver. In fact, a 1997 change to the federal tax code even made it possible for retirement savers to purchase physical metals on a tax-advantaged basis, which they can do by opening a gold IRA (consult with a qualified professional about ways owning an IRA could impact your financial profile).

That said, ease of metals access doesn’t necessarily mean owning gold and silver is right for everyone. Individual investors ultimately have to decide for themselves if it makes sense to take a page from the book of central banks when it comes to acquiring gold as an asset to help hedge and diversify their own portfolios.

On the other hand, if gold does fit an investor’s needs, this may be a great time to add gold to a retirement portfolio. The macro conditions that have supported gold for years and prompted record levels of central bank gold demand are likely to persist, say observers including those at the World Gold Council. If those conditions do persist, the world’s most influential and consequential financial institutions are expected to keep buying. And that speaks volumes.