Persistence of Central Bank Gold Purchase Program

Central banks continue to buy gold as a hedge against inflation and economic uncertainty. UBS predicts this trend will persist, driven by geopolitical tensions and diversification efforts. Gold prices are expected to reach $2,600/oz by year-end and $2,700/oz by mid-2025.

A recent study by UBS highlights the fact that there is still interest from global central banks in gold as part of their reserve currency. This tendency has been identified for several years and can be linked with the role of gold as an inflations indicator and with the role of gold as a diversifier and a safe-haven asset in conditions of economic risk.

Key points:

1. Central bank gold reserves were 37,000 metric tons by the end of the year 2023 and it was about 16%. Approximately 7% of the total of foreign exchange reserves.

2. Currently, there is an emerging trend in which countries are accumulating gold within their economies, and some of these countries include Russia and China.

3. The Ukrainian conflict and the subsequent freezing of Russian funds have accelerated this process, particularly for small states that may be subject to sanctions from Western countries.

4. UBS also states that factors like continued deterioration of the US dollar, and the conflicts around the world will ensure that central banks’ demand for gold remains high.

5. As per the information shared by the Swiss bank, it has predicted that the gold price may reach $2,600 per oz by year-end and $2,700 per oz by mid-2025.

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This consistent shift in the central bank reserve management strategies shows that there is a shift from concentration and reliance on the major currencies. As to the individual investor, it recommends that USD based balanced portfolios should have 5% exposure to gold.