Central banks are accounting for 23% of gold demand, led by EM – WF (Commodity:XAUUSD:CUR)

Central banks around the world now account for 23% of the total global gold demand, according to a report by Wells Fargo.

Gold (XAUUSD:CUR) is up 14% year-to-date, closing at new all-time highs on 16 different days. The gold spot price is up 0.57% from the previous day.

Persistent and historically elevated purchases by central banks have been the key driver of gold’s performance, said Analyst Mason Mendez in a Strategy note.

He said that since 2022, central banks have become a “dominant force driving global gold demand.” The percentage of demand from central banks went from 9% two years ago to 21% today, based on a four-quarter average. Demand is now at 23%.

Emerging market central banks, especially China, have been the main buyers of gold (GLD), (XAUUSD:CUR). “This is because gold is a rare reserve asset with no counterparty risk, unlike other reserve assets, such as U.S. Treasury yields (US10Y), (US5Y), (US30Y),” said Mendez.

As the levels of national debt have risen, counterparty risk has become a growing concern for central banks, especially emerging markets. Purchasing gold can protect them from devaluation due to another nation’s debt, as well as to diversify their reserves and be shielded from a strong U.S. dollar.

Mendez concluded that the buying of gold (GLD) by central banks is supporting the global gold prices (XAUUSD:CUR). He sees this trend continuing “for the foreseeable future” and supporting Wells Fargo’s 2024 target range of $2,300-2,400 per troy ounce, and the 2025 target range of $2,400-2,500 per troy ounce.