BRICS Central Banks Double Down on Gold in October

Summary: Doubling Down on Gold

Goldman Sachs’ latest precious metals analysis highlights a surprising shift in central bank behavior toward gold accumulation, with October’s demand hitting a robust 64 tonnes despite the bank’s own call for a decrease in demand just two months earlier. Driven by geopolitical risks, financial uncertainty, and structural reserve diversification, this trend is expected to continue, with China remaining at the forefront of purchases. The report underscores gold’s dual appeal as a geopolitical hedge and a financial stabilizer now presenting new upside surprise risks to their forecast of $3,000 per ounce by the end of 2025.

Strong October Buying: Central Banks Lead the Charge

Goldman’s analysis reveals that central bank and institutional gold bar purchases on the London OTC market, where most undisclosed activity occurs, came in significantly strong for October than the bank had anticipated they would in their prior report just two months ago. The report’s “Nowcast” analysis notes an uptake of registered 64 tonnes, surpassing the pre-2022 average of 17 tonnes. China emerged as the largest buyer, adding 55 tonnes, while Azerbaijan and the UAE contributed smaller amounts at 3 tonnes each.

Goldman expected a decrease in China buying. Instead they got a resurgence…

This surge is attributed to heightened concerns over geopolitical shocks and financial instability. Notably, central bank demand remains anchored in structural fears of reserve freezes, a precedent solidified by the 2022 Russian asset freeze.

To this effect, Goldman observes:

“Fears about geopolitical shocks have structurally risen since 2022, prompting EM central banks to reconsider what truly constitutes risk-free reserves.”

Drivers of Central Bank Gold Demand: Geopolitics and Diversification

Geopolitical Considerations
The Bank’s report highlights the direct correlation between gold bullion accumulation and geopolitical risks. Emerging Market (EM) central banks view gold as a safeguard against potential sanctions and asset freezes. Goldman references historical precedents, such as Russia’s pivot to gold following the 2014 sanctions and Libya’s earlier experiences.

The report cites statements from key Chinese policymakers reflecting concerns about safeguarding reserves: “Gold cannot be ‘arrested or frozen,’ making it an ideal hedge in an increasingly polarized world order.”

Their most recent statement giving reasons for favoring Gold even more than in recent months was made by Zhang Ming, deputy director of the Chinese Academy of Social Sciences’ Institute of Finance and Banking. Ming stated plainly: Beijing should adjust its strategy in managing China’s US$3.3 trillion worth of foreign-exchange reserves, given the lingering threat of US financial sanctions.

Ming echoes several nations’ sentiments when he notes the risk of possible sanctions and tariffs under President-elect Donald Trump when he takes office.

Post-2022, these fears became structural, resulting in a fivefold increase in central bank and institutional gold purchases.

Freezing Russia’s Assets stoked demand for non-confiscatable Stores of Value…

Financial Diversification
Goldman emphasizes that central banks are also responding to financial instability risks. Since the global financial crisis, EM nations have sought to diversify their reserve portfolios away from the U.S. dollar. China, for instance, has tripled its gold reserves since 2008. The report references a 2009 statement from China’s leadership: “We have lent a huge amount of money to the U.S.; of course, we are concerned about the safety of our assets.” This sentiment continues to resonate as reserve managers aim to reduce reliance on dollar-denominated assets.

China-Buying Has “Significant Room for Growth” vs Western Nations

Goldman’s analysis points to significant room for growth in central bank gold reserves, particularly in Emerging Markets. While developed economies such as the U.S., Germany, and France hold approximately 70% of their reserves in gold, China’s allocation remains strikingly low at just 5%.

This disparity underpins Goldman’s expectation for continued purchases, particularly by EM central banks. The Bank cites the World Gold Council’s 2024 survey, where “81% of respondents expect global central bank gold holdings to rise over the next 12 months, with none anticipating a decline.”

Central Banks Expect to dedollarize more in 2025…

The report also underscores that central bank buying will likely remain gradual to avoid significant market disruptions. Goldman highlights a statement from a former PBoC deputy governor, acknowledging the gold market’s limited capacity to absorb sudden, large-scale purchases.

Goldman: Our $3,000 Target May Now Be Low

Goldman maintains its year-end 2025 gold price forecast of $3,000 per ounce but now presents two-sided risks contingent on Federal Reserve policy and central bank purchases.

1. Downside Risk: As was known, if the Federal Reserve maintains higher rates than expected, the opportunity cost of holding gold will increase for Western buyers, potentially reducing demand.

2. Upside Risk: This is new and based on the Nowcast October data. Stronger-than-expected central bank purchases could bolster prices. The Bank estimates that if purchases exceed its forecast by 10 tonnes per month, gold prices could see a $50 upside, reaching $3,050 per ounce by year-end 2025. The report quantifies this using its demand-to-price model: “Every additional 100 tonnes of demand lifts gold prices by 1.5%-2%.”

Goldman’s December 10th forecast does not factor in the new purchases…

The Path Ahead: Central Banks as Steady Buyers

Goldman’s analysis underscores that the precedent set by the freezing of Russia’s central bank assets has reshaped global reserve management strategies. The Bank asserts that even a hypothetical thawing of Russia’s assets would not reverse this trend.

Central banks have adopted a longer-term approach to gold accumulation (in combination with a shorter term approach to their US debt holdings) driven by its unique qualities: “Gold does not carry credit risk, remains liquid, and performs during periods of economic uncertainty.”

Finally, to put it bluntly, No nation’s Gold or Silver can be taken from it if US confiscation of wealth materializes again.