Is the Era of Global Central Bank Gold Buying Really Coming to an End?

TradingKey - Are central banks collectively selling off gold? Since the situation in Iran deteriorated, the gold market has experienced dramatic volatility. In March, gold prices ( XAUUSD) plummeted by as much as 16% at one point. Coupled with news that Turkey has begun selling gold, market concerns over whether the "trend of central bank gold purchases has reversed" have intensified sharply.

UBS ( UBS) strategist Joni Teves, in the latest precious metals research report released on April 2, provided a clear assessment: the possibility of a structural shift and large-scale gold sell-offs by central banks is extremely low. Official institutions will maintain a net buying stance, although the pace of purchasing will slow moderately—full-year gold purchases for 2026 are expected to be around 800 to 850 tons, slightly lower than the approximately 860 tons in 2025.

The report points out that evidence citing "central bank gold sales" as the primary driver for this retracement is not solid; 800-850 tons suggests a "slowdown" rather than a trend reversal.

The scenarios the market fears are specific: if the conflict in the Middle East becomes prolonged, oil prices push up inflation, growth weakens, and local currencies depreciate, some central banks might be forced to sell gold to cope with the pressure. However, sales by individual central banks do not equate to a trend reversal for the official sector.

In fact, during the past 15 years of continuous gold accumulation by the official sector, monthly sales have not been uncommon. The reasons could be multifaceted, such as central banks that purchased at lower prices in earlier years engaging in tactical profit-taking outside of core positions, gold price surges triggering rebalancing, or natural inflows from gold-producing nations translating into external shipments at certain points. In other words, selling can be an action without necessarily representing a change in stance.

UBS's baseline assessment is that net buying continues, albeit at a slower pace. The nuance here lies in the trading habits of the official sector; they act more like physical buyers, often providing a floor during pullbacks to help the market stabilize more quickly at higher levels. Conversely, the official sector typically does not chase rallies, preferring to step in when prices are more favorable and volatility is more subdued. This explains why, when volatility spikes, the market suddenly feels as if "central banks have disappeared."

Research shows that recently, the official sector and other long-term holders have been more inclined to wait and see rather than immediately covering positions during every dip.

Since 2022, purchases by central banks and official institutions have been a crucial support for the gold bull market. In early March, uncertainty triggered by the conflict in the Middle East, combined with surging U.S. real interest rates and a stronger dollar, collectively placed heavy pressure on gold prices.

However, sustained strong demand for gold in the Chinese market (where domestic gold prices have consistently maintained a premium) has effectively limited the downside for gold prices, allowing them to stop falling and stabilize around $4,500. With the reversal of market expectations regarding Federal Reserve interest rate hikes, gold prices are currently trending back toward the $4,700 mark.

Panic over Turkey's 50-tonne gold sell-off magnified.

UBS's latest research report provides a clear interpretation of the much-discussed gold operations by the Central Bank of the Republic of Turkey (CBRT), pointing out that current market interpretations of this event contain significant errors. A portion of the total gold reported by the CBRT actually corresponds to domestic commercial bank positions; combined with the fact that some operations are gold-collateralized swaps rather than direct spot selling, the headline data is easily misread by the market. Data capable of decomposing changes in Turkey's total gold holdings is currently lagged, and the market must wait for more detailed granular data to discern the true trend.

In the two weeks following the outbreak of the Iran war, the CBRT utilized approximately 60 tons of gold, valued at over $8 billion, through direct sales and gold swap operations, which has become a major source of downward pressure on the gold market recently. According to the latest data released by the CBRT, gold reserves decreased by 6 tons during the week of March 13 and dropped further by a substantial 52.4 tons during the week of March 20, totaling nearly 58.4 tons and indicating a significant decline in reserve scale.

According to people familiar with the matter, not all of these gold operations were direct sales; more than half were completed through offshore gold-for-FX swap agreements, while the remainder was sold directly on the market. This method essentially uses gold as collateral to obtain low-cost dollar financing, a conventional tool for central banks to manage liquidity pressure. Turkey's utilization of gold comes as the country has depleted approximately $26 billion in foreign exchange reserves to stabilize the Lira's exchange rate, bringing FX reserves near exhaustion and forcing the use of gold reserves to supplement liquidity.

The scale of the Turkish central bank's gold operations exceeded the outflows from global gold ETFs during the same period. According to Bloomberg data, gold ETFs saw outflows of approximately 43 tons over the same two weeks, indicating that institutional investors are also simultaneously reducing their gold holdings. As one of the primary vehicles for institutional and retail investors to allocate to gold, ETF outflows further amplified bearish sentiment in the market.

Over the past decade, Turkey has been one of the most active gold buyers globally, ranking second in 2024 with 75 tons of gold purchases among central banks; its long-term accumulation of gold is aimed at reducing dependence on dollar-denominated assets and enhancing the diversification of its foreign exchange reserves.

However, following the escalation of the situation in Iran, a sharp rise in energy import costs and a surge in dollar demand forced the central bank to adjust its strategy, turning to the utilization of gold reserves in exchange for foreign currency or Lira liquidity.

For central banks, operations involving the sale of spot gold with swap agreements to repurchase in the future are not uncommon; this effectively amounts to securing low-cost dollar financing using gold as collateral.

JPMorgan economist Fatih Akcelik noted that Turkey holds approximately $30 billion in gold reserves at the Bank of England, which can be used directly for trading in the London market without logistical constraints, facilitating rapid intervention in the foreign exchange market.

The Turkish case has drawn widespread market attention because it fits the "central banks starting to sell gold" narrative, making it easy to interpret as a signal of a reversal in the global central bank gold-buying trend.

However, Turkey exhibits certain specificities. First, a portion of the gold movements was completed through swap agreements rather than direct sales; second, the CBRT has long used gold as a policy tool to support liquidity management within the domestic banking system, and its gold reserve data includes positions corresponding to commercial banks.

Since 2017, Turkey has allowed banks and other entities to use gold more extensively within the financial system, meaning that "changes in aggregate data" are not equivalent to "the central bank offloading on the market." Consequently, the report suggests waiting for the disclosure of more granular data before discussing any structural trend changes.

UBS Tweaks Gold Price Forecast

While gold prices may face further consolidation and volatility in the coming weeks as the market repeatedly reassesses geopolitical risks, UBS remains firm in its view that gold's long-term fundamentals remain strong. Speculative positions in the market are currently quite clean, while gold allocations by long-term participants remain insufficient.

UBS emphasized that this price pullback represents an excellent opportunity to establish strategic gold positions.

Influenced by first-quarter mark-to-market adjustments, UBS has slightly adjusted its 2026 average annual gold price forecast from $5,200 to $5,000, while firmly maintaining its year-end price target of $5,600 set in late January.

From a trading perspective, gold prices do not move in a straight line; consolidation and choppy price action may persist over the coming weeks as the market continues to re-evaluate geopolitical risks.

However, the two core drivers for gold allocation in the medium to long term are strengthening: the risks stemming from the growth-and-inflation mix and the persistence of geopolitical tensions are making 'gold allocation for diversification' an increasingly prevalent portfolio strategy.