One of the most important drivers of gold demand growth may be weakening
The gold market is facing a massive reversal. New data reveals that central banks ultimately bought significantly less gold compared to initial estimates, with a discrepancy reaching 187 tons. Quantities previously thought to be heading toward official buyers were reclassified, leaving behind a major question mark: Who actually absorbed these quantities, and why has the market picture shifted so dramatically? At the same time, growing opacity surrounding the moves of major central banks, led by China, complicates efforts by analysts to capture the true picture. In any case, this development comes at a critical juncture for gold, as markets try to discern whether one of the primary pillars supporting the historic rally of recent years is losing its strength.
The disruptive data
More specifically, a major data revision drastically reduced the estimate for central bank gold purchases from 244 tons in the first quarter to just 57 tons, marking the lowest first-quarter level in over 15 years, according to a new report by the World Gold Council (WGC), the international gold industry body. Official purchases had been one of the foundational factors supporting the global gold market rally over the past four years, contributing to historic price surges that peaked earlier this year.
Opacity in central bank purchases
However, tracking their activity has become increasingly difficult as buying operations become less transparent, particularly regarding major sovereign buyers like China, which discloses only a fraction of its transactions. A persistent slowdown in official sector buying would present a significant headwind for global gold prices, which have already dropped nearly 30% from their January peak. Central banks are often viewed as providing an informal price floor for bullion. Indeed, according to the WGC, they accounted for nearly one-third of total gold demand growth during the second quarter. However, this support mechanism could dissolve if their purchasing slowdown continues. While some monetary authorities voluntarily report their reserves to the IMF, there is no binding obligation to do so, making precise market tracking exceptionally challenging. "Errors of this nature are bound to occur occasionally," stated John Reade, senior market strategist at the WGC. The organization relies on dataset inputs from consultancy firm Metals Focus, which compiles quarterly projections for official gold reserves by combining public disclosures with institutional market intelligence.
A cat-and-mouse game
Reade noted that the reliability of public figures has deteriorated since 2022, when US sanctions against Russia prompted numerous emerging economies to diversify foreign exchange reserves away from the dollar while revealing less information about their physical sovereign gold holdings. As he explained, while the WGC has adopted updated monitoring frameworks to track physical flows, central banks frequently alter purchasing routes once they realize which channels are being monitored. "It turns into a cat-and-mouse game once they figure out what is being tracked," he said. "We, of course, must exert immense effort to ensure our verification procedures remain as precise as possible." During the first half of the year, central banks and other official entities, including sovereign wealth funds, acquired approximately 345 tons of bullion, marking the lowest half-year volume since 2022, according to the WGC report. The primary reason behind the first-quarter revision is that a portion of bullion previously assumed to belong to official buyers was reclassified under over-the-counter transactions and unallocated categories. Several official entities were net sellers during this timeframe, including public institutions in Turkey, Russia, and Azerbaijan. Following the outbreak of conflict in the Middle East, several regional sovereign wealth funds also initiated gold sales, partially to offset declining oil and gas revenues resulting from the disruption, according to Reade. Overall, global physical gold demand during the first six months of the year reached approximately 2,522 tons, representing a 2% increase compared to the corresponding period last year, according to the report. One factor weighing on recent demand was sustained outflows from gold-backed ETFs, which totaled 45 tons (approximately $4 billion) during the second quarter.
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