Retreat In Gold Prices Might See Central Bank Support

Gold prices have continued to pull back as investors see inflation slowing. 

However, central bank support over the last year could continue to support the precious metal. 

Gold – Daily Chart

Gold – Daily Chart

The price of gold touched a high around the $1,960 level but has since seen its price pull back to $1,853. A moving average supports prices there, but there would be lower levels ahead if no buyers were hovering around that level. 

Central banks’ gold reserves have risen over the last 12 months as policymakers seek to defend their currencies against inflation and the conflict in Ukraine. According to the World Gold Council (WGC), net gold purchases by global central banks jumped 47% year-on-year to 50 tonnes in November. 

The People’s Bank of China has been one of the largest buyers, purchasing an additional 970,000 ounces of gold in December. China’s total reserves now sit at 64 million ounces. That figure becomes more pronounced when it is realised that the country’s gold reserves have remained unchanged for three years. China was a large purchaser of US treasury bonds in the past. Gold is another way to diversify with recent tension growing between the countries. 

China has not been the only buyer, as central bank purchases of gold hit 417 tonnes in the last three months of the year, which is around 12 times higher than the same quarter a year ago. The annual total was more than double the previous year. Krishan Gopaul, a senior analyst at the WGC, said “colossal” central bank buying was a “huge positive for the gold market.” 

Gold could see support if there is an escalation of the conflict in Ukraine with the likes of the UK set to send jets to the country.

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