Although you wouldn’t know it from the gold market’s recent behavior, central bank buying of the yellow metal has remained robust. These financial powerhouses have bought significant quantities of gold in the third quarter as inflation worries and other factors have fueled market volatility and investor angst. A quarterly report by the World Gold Council stated that central banks grabbed nearly 400 tons of gold in the third quarter, the most on record. The WGC also suggested this figure represents a jump of some 300% from the year prior. Obviously, central banks are seeing the need to go out and buy gold. Perhaps you should consider doing the same.
Of interest in the WGC report is the fact that the largest players were anonymous. Some nations, such as China and Russia, often prefer to keep their gold buying to themselves and do not report their purchases. Given the current war in Ukraine and a possible Chinese invasion of Taiwan, it certainly seems plausible that China and Russia could be the faces behind the anonymous buyers.
Of the known buyers, the central banks of Turkey, Uzbekistan and Qatar were the biggest purchasers. Turkey bought 31 tons of gold in the third quarter, boosting its total reserves to some 489 tons. Uzbekistan has been buying gold consistently, and added 26 tons to its holdings in the quarter. Qatar added 15 tons of gold in July, its largest monthly purchase on record.
The recent string of gold purchases has been a stark contrast to what has happened in the gold market. Prices have declined for seven straight months now, and one has to wonder if those declines could have been far steeper without such heavy buying from central banks. Gold ETF outflows have also likely been a factor. These ETF outflows are likely to continue until sometime next year which is the soonest the Fed would likely begin to pivot away from the inflation fight.
Gold’s fortunes may remain unchanged until the Fed does in fact start to pivot away from raising interest rates. The Fed will almost certainly finish off the year with another hike next month. Next year and early 2023 remain up in the air, however, and could provide the Fed a chance to start undoing the mess it has created by raising rates aggressively over the last several months. Once the central bank begins to ease rates again, the gold and equity markets may both breathe a sigh of relief and start heading higher again.
Until that time, the market remains stuck in no man’s land. The $1600 and $1700 levels remain key technical areas that could dictate price action for the months to come. Whichever side is breached first, on a closing basis, may see prices continue in that direction for a period of time. Such a breach could be a ways off still, however, and the market could maintain a tight trading range for some time.