The "major hidden danger" of gold prices: Central banks are buying less?
Central bank gold purchasing demand slows, and gold prices face challenges. A Deutsche Bank report shows that global central bank gold demand fell by one-third in Q2, reaching the lowest level since 2022, which may force analysts to lower their gold price expectations for 2026 to $3,600 per ounce. Changes in central bank demand have compressed the share of jewelry demand, and reserve managers may be more focused on the dollar value of gold allocation rather than its weight. This trend poses a downside risk to gold price forecasting models
Central bank gold purchasing demand slows, and the important support for gold prices faces testing, which may trigger expectation adjustments.
On August 8, according to news from the Chasing Wind Trading Desk, a gold demand analysis report released by Deutsche Bank revealed a concerning trend for investors: global central bank gold demand saw a significant decline in Q2.
Data shows that central bank gold demand in the second quarter dropped by one-third compared to the first quarter, reaching the lowest level since the second quarter of 2022. The bank stated that this change is particularly noteworthy, as central bank demand has been a core driver pushing gold prices to new highs in recent years.
The research report pointed out that the slowdown in central bank demand means that the important support for rising gold prices is weakening. Therefore, this trend poses a potential threat to gold prices, which may force analysts to lower their gold price expectations for 2026 to $3,600 per ounce.
Sharp Decline in Central Bank Gold Purchases Triggers Alarm
The research report noted that, according to data released by the World Gold Council for the second quarter, global central bank gold demand has shown a worrying decline. Central bank gold purchases in the second quarter plummeted by one-third compared to the first quarter, setting a record low since the second quarter of 2022.
Deutsche Bank believes this change is particularly critical, as central bank demand has been an important force driving gold prices higher in recent years.
Additionally, data also shows that the share of central bank demand in the global gold market has doubled from 10% in 2021 to 21% in 2024.
Deutsche Bank stated that this change in demand structure has become a key factor driving gold prices up, while also compressing the share of jewelry demand, bringing it down to the third lowest level since 1977.
Interestingly, Deutsche Bank proposed a viewpoint in the report to explain the contradiction between central bank demand data and survey results: reserve managers may be measuring gold allocation more in terms of dollar value rather than ounce weight.
The bank stated that from the perspective of actual dollar value, the decline in central bank demand in the second quarter was only 23%, rather than the 33% calculated by ounces.
This observation suggests that, in the context of continuously rising gold prices, central banks may be adjusting their gold purchasing strategies, focusing more on the value of allocations rather than the quantity. If this logic holds, then the sustained strength of gold prices themselves may become a factor limiting central banks from further large-scale gold purchases.
Challenges Facing the Forecast Model
Deutsche Bank acknowledges that the slowdown in central bank demand poses a downside risk to its gold price forecast model. The bank had previously assumed that central bank demand would remain around 1,000 tons in 2025, falling to about 750 tons in 2026. However, the actual demand in the first half of 2025 was only 415 tons, which means that 585 tons need to be achieved in the second half to meet the annual target, putting significant pressure on the forecast.
The bank's scenario analysis indicates that if central bank demand continues at the current pace, the gold price forecast for 2026 may need to be revised down from the current $3,700 per ounce to around $3,600 per ounce. In a more extreme case, if annual central bank demand drops to 500 tons, the gold price forecast could fall to $3,300 per ounce.
Deutsche Bank analysts have set 375 tons per half-year as the critical point for maintaining the current forecast; falling below this level would justify a downward revision. However, Deutsche Bank currently maintains its 2026 gold price forecast of $3,700 per ounce based on three key factors:
First, the bank has adopted relatively conservative assumptions for central bank demand in its 2026 forecast, with an expected annual demand of 750 tons providing some buffer for the model.
Second, the latest survey by the World Gold Council shows that the proportion of respondents expecting their own institutions and global central banks to increase gold holdings in the next 12 months has reached a record high.
Third, other sources of investment demand are expected to partially offset the shortfall in central bank demand.
Deutsche Bank specifically mentions that the U.S. may introduce policy changes, such as including precious metal funds in 401(k) retirement plans through executive orders, which could bring new demand dynamics to the gold market.
Additionally, the analysis shows that there is an asymmetry in the response of jewelry consumption and the gold recycling market, providing additional support for gold prices.
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