Asian Central Banks Continue Gold Buying Despite Western Outflows

A recent report by global asset manager Schroders indicates that the gold market reverted to its traditional East-West dynamic in June, with Asian central banks and investors continuing to accumulate gold while many Western investors reduced their holdings amid expectations of prolonged restrictive monetary policy by the U.S. Federal Reserve.

According to the report, the divergence emerged even as gold prices declined by nearly 12%, with central banks across emerging markets viewing the price correction as an opportunity to expand their gold reserves as part of long-term reserve diversification strategies and efforts to reduce reliance on the U.S. dollar.

Schroders analysts noted that selling pressure in Western markets was largely driven by cyclical expectations that the Federal Reserve would maintain higher interest rates for longer, whereas official buyers in the East continued accumulating bullion for strategic rather than short-term investment reasons.

Fed Outlook Could Shift Gold Sentiment

The report expects gold prices to find a bottom within the next three to six months as the market's perception of the Federal Reserve's hawkish stance gradually fades.

Although some of Schroders' economists still see the possibility of further U.S. interest rate hikes due to broader inflationary pressures, the firm's precious metals analysts believe energy-related inflation risks have eased, forward inflation expectations have fallen significantly, and labor market data remain mixed, showing little evidence of persistent wage inflation.

The report added that a further rise in U.S. unemployment could eventually force a shift in the Federal Reserve's policy narrative, creating a more supportive environment for gold prices.

Rising U.S. Debt Limits the Fed's Flexibility

Schroders also argues that the United States has entered an era of "fiscal dominance," where massive government financing needs increasingly constrain the Federal Reserve's ability to continue raising interest rates aggressively.

The report noted that the U.S. Treasury faces between $8 trillion and $10 trillion in debt refinancing over the next 12 months, in addition to approximately $2 trillion in new deficit financing requirements. This implies unprecedented levels of Treasury issuance at a time when interest expenses have already exceeded the country's defense budget.

According to the analysts, this raises important questions about the effectiveness of traditional monetary policy, as higher interest rates may simultaneously increase income for bondholders while tightening financial conditions for borrowers.

Central Banks Remain the Gold Market's Key Support

The report emphasized that continued central bank buying remains the most important factor underpinning the long-term bullish outlook for gold.

It highlighted Poland as one of the most significant official buyers since Russia's invasion of Ukraine in 2022. Although the National Bank of Poland is expected to achieve its target of 700 tonnes of gold reserves this year, Schroders believes it is likely to continue purchasing gold even after reaching that objective.

More importantly, the report argues that Poland is not an isolated case. Surveys conducted by both the World Gold Council (WGC) and OMFIF suggest that a growing number of emerging market central banks intend to increase their gold holdings over the coming years, reflecting a structural shift in global reserve management.

China Continues to Send Strong Signals

Schroders identifies the People's Bank of China (PBOC) as the single most influential sovereign buyer in the global gold market—not only because of the scale of its purchases but also because of the signaling effect those purchases have on domestic Chinese demand and potentially on other central banks.

The report notes that the PBOC significantly increased its gold purchases as prices declined. Official buying rose from just 2 tonnes in February, when gold traded above $5,000 per ounce, to 15 tonnes in June, when the average gold price was approximately $4,250 per ounce.

According to the analysts, this buying pattern may indicate the price levels Beijing considers attractive for reserve accumulation, while also demonstrating China's willingness to continue buying even when gold trades at historically elevated levels.

China's Actual Purchases May Be Larger Than Reported

Schroders also suggests that the People's Bank of China's reported purchases may understate its actual gold accumulation.

The report points out that the PBOC has previously announced substantial increases in its gold reserves in 2003, 2009, and 2015, revealing large volumes of previously undisclosed purchases accumulated over several years.

Given today's geopolitical environment and changes in the U.S. political landscape, the analysts believe it would not be surprising if China is once again choosing to disclose only part of its gold acquisitions.

Decades of Potential Gold Buying Ahead

According to the report, gold currently accounts for only about 8.3% of China's total foreign exchange reserves at current prices.

To increase that share to 30%, while assuming all other reserve components remain unchanged, China would need to continue purchasing 15 tonnes of gold every month for approximately 33 years.

Schroders concluded that this illustrates the enormous long-term potential for additional gold purchases not only by China but also by many other central banks, reinforcing the outlook that official-sector demand is likely to remain one of the strongest structural supports for the global gold market for years to come.