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Central Bank Gold Demand in 2023

Over the last five years, there have been some significant shifts in the government reserves of precious metals globally. Many nations have chosen to increase their holdings of precious metals, particularly gold, to bolster their economies against potential future shocks. This has been particularly true in countries such as Russia and China, which have consistently expanded their gold reserves as part of a broader strategy to reduce dependence on the US dollar. There's also been a trend of repatriation, where countries like Germany and the Netherlands have moved portions of their gold reserves from foreign vaults back to their home soil. However, not all nations have followed this trend; some have instead opted to maintain or slightly decrease their reserves, often in response to domestic economic pressures or to leverage market prices.

Central Banks Begin 2023 with a Record-Breaking Surge in Gold Demand

2023 kicked off to an astounding start as central banks' demand for gold reached an unprecedented 228 tonnes (t) in Q1, marking a 34% increase over the previous Q1 record set in 2013. This striking surge was hot on the heels of the record annual demand of 1,078t in 2022. The momentum was observed in both emerging and developed markets alike, underscoring the universal appeal of the precious metal.

During the first quarter, central bank demand rose to 228.4t from 82.7t in Q1 2022, indicating a whopping year-on-year increase of 176%, as reported by Metals Focus and the World Gold Council. Although the Q1 figure was slightly lower than the final two quarters of 2022, it still represents the strongest first quarter on record. This achievement becomes even more significant when we consider that it follows a year of record-breaking demand.

Recent quarters witnessed colossal buying, resulting in a significant jump in the rolling four-quarter total, which reached 1,224t in Q1. The data from Q3 and Q4 of 2022, along with the current quarter, contains a considerable estimate for unreported activity, highlighting the growing global attraction towards gold.

During Q1, the majority of the reported purchasing was attributed to four central banks. The Monetary Authority of Singapore (MAS) led the pack, adding 69t to its reserves – the first increase since June 2021 – thereby proving that the Q1 buying wasn't restricted to emerging markets alone. This addition propelled the total gold reserves at MAS to 222t, marking a 45% increase since the end of 2022.

The People’s Bank of China followed suit by increasing its gold reserves by 58t. After resuming the reporting of purchases in November 2022, the bank has added 120t to its reserves, bringing the total to 2,068t, or 4% of total reported gold reserves. Turkey's official reserves increased by 30t, despite a sale in March, taking the total gold reserves to 572t or 34% of total reserves. The Reserve Bank of India added a modest 7t, while the Czech Republic and the Philippines also notably added to their reserves.

In a significant update, the Central Bank of Russia resumed reporting its gold reserves, revealing a 6t decrease to 2,327t, or 25% of total reserves, in Q1. Despite this slight decrease, possibly related to coin-minting, Russia's gold reserves are still 28t higher than when it halted reporting last year.

On the other end of the spectrum, the Central Bank of Uzbekistan and the National Bank of Kazakhstan were the largest sellers of gold during the quarter. Cambodia, UAE, and Tajikistan were also significant sellers. Croatia reported a 2t reduction due to a mandatory transfer to the European Central Bank, as required of all countries joining the euro area.

Strong central bank demand should continue to hold up well, with purchases continuing to surpass sales. While there are no guarantees that the rapid start to 2023 will be sustained, the potential for surprise activity – both in purchases and sales – should not be discounted. One thing is clear – gold continues to maintain its glitter in the eyes of central banks worldwide.

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