Why Central Banks Buy Gold — And What It Means for Prices

Central banks are among the most influential players in the gold market. Collectively, they hold over 36,000 tonnes of gold — approximately 17% of all the gold ever mined in human history. Their buying and selling decisions can move prices, set trends, and signal broader shifts in global monetary policy. Understanding central bank gold activity is essential for any serious gold investor.

Who Holds the Most Gold?

The world's largest gold holders (as of late 2024) are:

1. United States: 8,133 tonnes — held at Fort Knox, the Federal Reserve Bank of New York, and other depositories. Gold represents about 69% of US foreign reserves.
2. Germany: 3,352 tonnes — the Bundesbank holds gold in Frankfurt, London, and New York. Gold is about 68% of German reserves.
3. Italy: 2,452 tonnes — the Banca d'Italia holds the third-largest reserve, accounting for about 65% of reserves.
4. France: 2,437 tonnes — held by the Banque de France, representing about 65% of reserves.
5. Russia: ~2,336 tonnes — the Bank of Russia has aggressively accumulated gold since 2014 as part of its de-dollarization strategy.
6. China: ~2,264 tonnes (officially reported) — the People's Bank of China has been a major buyer since 2019. Analysts believe actual holdings may be higher than reported.
7. Switzerland: 1,040 tonnes — remarkably high for a country of 8.7 million people.
8. Japan: 846 tonnes
9. India: ~854 tonnes — the Reserve Bank of India has been steadily increasing its gold holdings.
10. Netherlands: 612 tonnes

The International Monetary Fund (IMF) itself holds 2,814 tonnes, and the European Central Bank holds 507 tonnes of gold.

Why Do Central Banks Hold Gold?

Reserve Diversification

Central bank reserves are primarily held in foreign currencies — mostly US dollars, euros, pounds, and yen. Gold provides diversification away from paper currencies, reducing exposure to any single country's monetary policy, political decisions, or economic performance.

No Counterparty Risk

Unlike government bonds or foreign currency deposits, physical gold held in a vault has no counterparty risk. It doesn't depend on any government or institution to honor its obligations. This became starkly relevant in 2022 when Western nations froze approximately $300 billion of Russia's foreign currency reserves after the invasion of Ukraine — a move that could not have been done to physical gold held on Russian soil.

Inflation Protection

Gold has maintained purchasing power across millennia. Central banks hold gold to protect their reserves against currency debasement and inflation — particularly relevant in an era when many central banks have engaged in massive money printing (quantitative easing). Read more about gold as an inflation hedge.

Confidence and Credibility

A substantial gold reserve signals financial strength and credibility. Gold backing provides implicit assurance that a nation's currency has real assets behind it. This is especially important for emerging market currencies seeking to build trust in international markets.

Geopolitical Insurance

In times of war, sanctions, or financial system disruptions, gold remains universally accepted and liquid. It can be used to settle international transactions when normal channels are disrupted. This "last resort" function is why countries with geopolitical tensions (Russia, China, Turkey) have been the most aggressive buyers.

The Historic Shift: From Sellers to Buyers

For most of the 1990s and 2000s, central banks were net sellers of gold. European central banks sold thousands of tonnes under the Central Bank Gold Agreements (1999-2019), and the UK famously sold half its reserves at near-bottom prices.

This trend reversed dramatically around 2010. Since then, central banks have been net buyers every single year. The shift accelerated after 2018:

• 2018: 656 tonnes purchased (net)
• 2019: 668 tonnes
• 2020: 255 tonnes (reduced by COVID logistics)
• 2021: 463 tonnes
• 2022: 1,136 tonnes — the highest on record since 1967
• 2023: 1,037 tonnes — the second-highest on record
• 2024: On pace for another 900+ tonne year

This represents a structural shift in central bank behavior that many analysts believe will continue for years, providing a sustained floor of demand for gold.

Who's Buying the Most?

The biggest buyers in recent years have been:

• China (PBOC): Added over 300 tonnes in 2023 alone, bringing official reserves to ~2,264 tonnes. China is believed to be buying gold as part of a long-term strategy to reduce dependence on the US dollar.
• Poland (NBP): Added 130 tonnes in 2023, the largest purchase by a European central bank in decades. Poland aims to increase gold to 20% of reserves.
• Turkey (CBRT): Has been a major buyer despite domestic economic challenges, adding over 100 tonnes annually.
• India (RBI): Steadily adding 20-40 tonnes per year, reflecting India's deep cultural affinity for gold.
• Czech Republic, Singapore, Iraq, Qatar: All have been notable buyers in recent years.

How Central Bank Buying Affects Prices

Central bank purchases are one of the key factors affecting gold prices. The impact works through several channels:

• Direct demand: Over 1,000 tonnes per year represents about 25% of total annual gold supply. This is enormous sustained demand that must be met by miners and recyclers.
• Signal effect: When the world's most sophisticated financial institutions are buying gold, it sends a powerful signal to private investors that gold is a desirable asset.
• Reduced available supply: Gold bought by central banks is essentially removed from the market for decades. It doesn't get resold, recycled, or traded. This reduces available supply for private investors.
• Floor under prices: Consistent buying creates a structural floor under gold prices. Even during sell-offs, central bank demand provides support.

What It Means for Individual Investors

The message from central banks is clear: the world's financial authorities consider gold a critical reserve asset — and they're buying more of it than at any time in over half a century. For individual investors, this offers several implications:

• Long-term demand support: Central bank buying is not speculative — it's strategic and likely to continue for years. This provides structural support for gold prices.
• De-dollarization trend: The shift toward gold reflects a broader move away from US dollar dominance. This trend is bullish for gold in dollar terms.
• Crisis preparation: Central banks are preparing for potential disruptions to the international financial system. Individual investors may want to follow their lead.

Track the gold price in real time to see how central bank activity and other factors are moving the market on our live dashboard.