Central Banks’ Gold-Buying Spree Continues for Eleventh Consecutive Month.

Global central bank gold reserves increased by an additional 52 tons in February, representing the eleventh consecutive month of net purchases of the yellow metal, new data show.

According to the latest figures from the World Gold Council (WGC), China was the biggest gold buyer in February, acquiring 24.9 tons. The People’s Bank of China (PBoC) has increased its gold holdings for four straight months, growing its reserves by roughly 102 tons.

As of the fourth quarter of 2022, Beijing possessed more than 2,010 tons of gold.

Ankara maintained its 15-month streak of gold buying in February, as the Central Bank of Turkey added more than 22 tons.

Turkey has been contending with skyrocketing inflation for the last couple of years, hitting a peak of 85.51 percent in October 2022. However, the annual inflation rate has been slowing since then, coming in at 55.18 percent in March.

Rounding out the top five were the central banks of Uzbekistan (8 tons), Singapore (7 tons), and India (3 tons).

The National Bank of Kazakhstan was the only net seller, with the institution’s reserves declining by about 13 tons.

Looking ahead, the WGC anticipates extended central bank demand this year, driven by “geopolitical uncertainty and rampant inflation.”

“Overall, we expect further buying, with EM [emerging market] banks at the forefront of this trend as they continue to redress the imbalance in gold allocations with their developed market peers,” the organization noted in a report.

WGC researchers added that “cracks from unprecedented monetary policy are beginning to show,” particularly in the banking and real estate sectors.

“The case for an economic slowdown remains. Gold is handy in a recession as dry powder, given that a weakened economy is more exposed to these financial cracks becoming systemic,” the report stated.

In 2022, total central bank gold purchases were 1,136 tons, the largest net amount since 1950, and was the thirteenth consecutive year of gold buying.

The precious metal has garnered investors’ attention in recent weeks, flirting with record highs.

After approaching the key psychological level of $2,000 in intraday trading, gold finally settled the April 3rd session at $2,000.40 an ounce. May gold futures finished the April 4 trading session at $2,038.20 per ounce.

The all-time high was recorded in August 2020, at $2,069.40.

But why is gold rallying as of late?

The Trifecta

Gold prices have found support on a trifecta of issues: the U.S. dollar, interest rates, and recession fears.

The first reason for gold’s rally is the greenback. Since the Federal Reserve signaled in November 2022 that the end of its quantitative-tightening cycle was near, the buck has been on a downward trend.

The U.S. Dollar Index (DXY), a gauge of the greenback against a basket of currencies, hit a peak of 114.78 last year. Today, the DXY is trading at around 102.00, and is down roughly 1.6 percent year to date.

A weaker buck is good for dollar-denominated commodities, like gold and silver, because it makes it cheaper for foreign investors to purchase.

Another contributor to the yellow metal’s ascent has been shifting expectations over interest rates.

According to the updated Survey of Economic Projections (SEP) (pdf) from the Federal Open Market Committee (FOMC) policy meeting in March, the U.S. central bank is penciling in one more rate hike this year. In addition, CME FedWatch Tool data show that the futures market is anticipating rate cuts toward the year’s end.

U.S. Treasury yields have decreased considerably since hitting their peak in early March. The two-year note, for example, is trading below 3.8 percent after reaching a peak of 5.1 percent before the banking turmoil that saw the failures of Silicon Valley Bank and Signature Bank.

Gold is generally sensitive to movements in interest rates because they can impact the opportunity cost of holding nonyielding bullion.

Abysmal economic data have supported the upward trajectory in gold prices, experts assert.

The March non-farm payroll report will play an essential role in the commodity’s near-term performance, says Warren Patterson, the head of commodities strategy at ING.

“Spot gold has closed above the US$2,000/oz mark this week for the first time since March 2022 after U.S. data showed the job market is loosening, fueling expectations that the Fed is nearing the end of its monetary-tightening cycle,” he wrote in a note.

“Gold has also benefited over the last month from increased safe-haven demand given concerns from the banking sector. Markets will be keeping a close eye on the U.S. jobs report later this week and whether this takes the gold market to striking distance of its all-time high of US$2,075.47/oz made in August 2020.”

Recession talk has been renewed on Wall Street, noted Ed Moya, the senior market analyst at OANDA.

“Demand for safe havens has never been better since recession risks have not been this high in decades, banking concerns remain, and excessive pessimism for equities,” he said.

Construction spending and factory orders tumbled 0.1 percent and 0.7 percent, respectively, in February.

The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) contracted for the fifth consecutive month, sliding to 46.3 in March. The ISM Services PMI slowed to 51.2 in March, down from 55.1.

The U.S. labor market is also showing cracks after job openings slipped below 10 million for the first time in nearly two years. Plus, the ADP Employment Report found that the private-sector payroll growth came in less than expected at 145,000.

Markets expect that the March jobs report will show 239,000 new jobs. If accurate, it would be down from 311,000 in February.

The Federal Reserve Bank of Atlanta’s GDPNow model estimate for real GDP growth was trimmed to 1.5 percent for the first quarter, down from a high of 3.5 percent.

“[T]he rate hikes so far, plus financial sector turmoil, will weigh on lending and, consequently, investment and consumption,” wrote ING economists in a research note. “As a result, we feel more convinced than ever with our recession call for the U.S. economy and a subdued growth forecast for the eurozone.”