Central Bank Buying May Have Boosted Gold Prices In January – World Gold Council

Physical gold purchases may have bolstered gold prices gains in in January, according to the World Gold Council (WGC).

The organisation said that bullion prices gained 6.1% in January to end the month at $1,924 per ounce.

It said that the falling US dollar was a “a significant contributor” to January’s rise, with “a drop in US Treasury yields” giving values an extra boost.

The US dollar index — an instrument that weighs the strength of the North American currency against a basket of other currencies — fell to its cheapest since last spring in January. Traders sold the greenback as news of sinking inflation raised speculation of less-severe rate hikes from the Federal Reserve.

A weaker buck makes it cheaper to buy bullion in other currencies, thus boosting overall gold demand.

Central Banks Continue Buying?

The WGC commented that strong buying interest from central banks could also be responsible for gold’s strong start to the new year.

It said that “we can’t rule out [the impact of] capturing central bank buying or expectations thereof, which — following a colossal 2022 — may be continuing into 2023.”

The People’s Bank of China added an extra 15 tonnes of the precious metal to its reserves in January, the organisation noted.

Central banks bought a record 1,136 tonnes of the yellow metal last year, according to earlier WGC data. It said that institutions bulked up their holdings due to geopolitical uncertainty and high inflation.

2023 market the thirteenth successive year of net purchases and the largest level of annual demand since 1950.

ETFs Record Outflows In January

However, the WGC noted that holdings in global exchange-traded funds (ETFs) experienced a 26.2-tonne outflow in January.

Total holdings in these funds stood at 3,446.2 tonnes at the end of January.

The council said that this was driven primarily by liquidations in Europe where outflows totalled 33 tonnes. It speculated that the level of selling was “potentially impacted by the area’s rising interest rates, appreciating currencies and strengthening local equities.”

Holdings in Asian ETFs dropped 4 tonnes last month, it said, due to outflows in China. But funds in North America enjoyed their second consecutive month of inflows, up 9 tonnes, while inflows elsewhere totalled 1.7 tonnes.

Despite these physical outflows global ETFs rose 5% in value thanks to the rising price of gold. Total holdings were valued at $213.4 billion as of 31 January.