Central banks bought less gold in 1Q than initially estimated -WGC

Central banks recorded their lowest 1Q gold net purchases in over 15 years, after an initial estimate of 244 tonnes of purchases was revised down to a mere 57 tonnes, according to a World Gold Council (WGC) report picked up by the Financial Times.

The gap: The revision occurred after gold previously thought to be flowing to official channels was reclassified into the over-the-counter (OTC) category. Central bank disclosures on gold purchases only take place on a voluntary basis, and purchasing tracking is becoming increasingly opaque, especially when it comes to China — a big buyer that only discloses a portion of purchases.

The bigger picture: The new stat puts purchases at their lowest for a 1Q period in over 15 years, the report said. Purchases picked up in 2Q to reach 289 tonnes, marking a 5x increase compared to the first quarter, largely on the back of purchases by China and Poland. However, overall central bank demand was at its lowest 1H stat since 2022.

There’s also a geopolitical element: Gold purchasing reporting also became complicated following US sanctions on Russia in 2022, which drove developing economies to diversify away from the greenback, leading institutions to disclose far less to the IMF.

Major sovereign buyers now reveal only a fraction of their transactions, forcing analysts into a “game of cat-and-mouse” to trace actual physical flows, said John Reade, market strategist at the WGC.

Why Middle East capital is in the mix: Following regional conflict disruptions, several Middle Eastern sovereign wealth funds unloaded bullion reserves to offset declines in oil and gas revenue, according to Reade. Elsewhere, official institutions in Turkey, Russia, and Azerbaijan were net sellers during 1H.

Why the pullback: Central banks act as the gold market’s buyer of last resort, accounting for up to a third of global 2Q demand. When prices pull back, official sector buying typically absorbs excess supply, creating a hard floor under bullion. When its gold purchasing activity slows, this price floor supporting the global gold market starts cracking. This comes at a time when gold prices have already fallen by around 30% from January peaks.

What else weighs on the demand: Although 1H gold demand went up 2% y-o-y to 2.5k tonnes, momentum was weighed down by gold exchange-traded fund (ETF) liquidations, which saw outflows of 45 tonnes (USD 4bn) in 2Q alone.

THE CLOSING BELL-

The EGX30 fell 0.4% at Thursday’s close on turnover of EGP 11.9 bn (25.5% above the 90-day average). Local investors were the sole net sellers. The index is up 27.8% YTD.

In the green: AMOC (+7.0%), Abu Qir Fertilizers (+2.4%), and ADIB (+1.4%).

In the red: Telecom Egypt (-3.0%), Beltone Holding (-2.6%), and Heliopolis Housing (-2.5%).