Key insights
- China's central bank extended its gold buying streak to 17 months, signaling strong domestic demand despite global volatility. UBS strategist suggests this trend is unlikely to reverse structurally, with continued official sector purchases expected. Concerns exist about central banks potentially selling gold to manage inflation and currency depreciation in a prolonged Middle East conflict. Near-term, gold prices may face consolidation due to geopolitical risks.
Investing.com -- China’s central bank extended its gold accumulation streak to 17 consecutive months in March, adding 160,000 fine troy ounces to bring total reserves to 74.38 million fine troy ounces.
The dollar value of those holdings slipped to $342.76 billion from $387.59 billion a month earlier, according to data from the People’s Bank of China.
Gold tumbled 16% in March, and investors have been concerned that central bank selling was a key driver of the decline.
Furthermore, in a prolonged Middle East conflict scenario, many market participants fear that central banks could face the toxic combination of sharply rising inflation, falling growth and depreciating currencies, potentially forcing them to liquidate gold reserves to manage the pressure.
However, while some central bank selling has occurred, UBS strategist Joni Teves believes "it is very unlikely that there is a structural shift in the official sector trend."
He expects the global official sector to purchase between 800 and 850 tonnes of gold this year, only a modest step down from roughly 860 tonnes in 2025, and sees no structural reversal on the horizon.
"Over the past 15 years of the official sector building gold reserves, it is not unusual for some central banks to occasionally show selling during any one month and there are several reasons for this," Teves said in a recent note.
Central banks, Teves explained, tend to accumulate during stable conditions rather than volatile ones, preferring to buy on dips rather than chase a falling market.
That context makes China’s uninterrupted buying streak all the more striking. Onshore gold prices in China have continued to trade at a premium to international benchmarks throughout the period, signalling that domestic demand has remained firm even as global sentiment whipsawed.
Teves warned that gold could face further consolidation and choppy price action in the near term as markets continuously reprice geopolitical risks, but he sees pullbacks as buying opportunities.
The strategist expects gold to average $5,000 this year and maintains his year-end target of $5,600, arguing that long-term investors remain underinvested while growing concerns about the growth-inflation mix continue to drive diversification into the metal.