Why central banks are buying gold en masse, and what it means for the price

Published: 2025-06-01 07:01:05 ET GS

Published on 06/01/2025 at 07:01

Key takeaways

Government purchases of gold have a significant impact on price appreciation. As investor demand for safe havens amid economic uncertainty contributes, central banks are emerging as key drivers.

Bypassing financial systems or sanctions

The invasion of Ukraine marked a turning point and led to a five-fold increase in gold purchases by central banks. This trend is expected to continue, creating continued upward pressure on gold prices.

Countries are exploring gold-backed digital assets and trading systems to circumvent the U.S. dollar-dominated financial system. While these initiatives often focus on economic benefits, gold is also being used by adversaries to circumvent sanctions and fund activities contrary to U.S. interests.

Gold reserves

Developed markets generally hold larger gold reserves because of their historical ties to the gold standard. Central banks in the U.S., Germany, Italy and France, for example, allocate more than 70 percent of their reserves to gold. In contrast, emerging markets such as China hold a smaller share (about 5 percent), with foreign currencies accounting for a larger share of their reserves.

Predicting gold prices

Goldman Sachs expects major central banks in emerging markets to gradually increase their gold holdings to a global average of about 20 percent.

Precious metals strategists predict significant price increases in the near future, reports China South Morning Post. Factors such as escalating trade tensions, slowing growth, rising inflation and geopolitical risks are driving investors toward safe haven assets such as gold. Goldman Sachs predicts a rise to $3,700 per ounce (about 3,260 euros) by the end of 2025 due to renewed investor interest and continued demand from central banks.

ETFs

Furthermore, exchange-traded funds (ETFs) are joining the rally. Despite current holdings remaining below the 2020 peak, there is plenty of room for investors to re-enter the gold market as they reassess macroeconomic conditions.

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