A Shift in Central Bank Behavior
For decades following World War II, central banks around the world consistently accumulated gold, with total holdings rising to nearly 38,000 tonnes. However, this trend changed after 1971 when the Bretton Woods system was dismantled and gold was delinked from the dollar (see image below). Countries such as the UK and Canada began selling off their gold reserves, which pushed global central bank reserves down to about 30,000 tonnes.
The 2008 Turning Point
After the 2008 financial crisis, this long-term trend reversed. Central banks resumed gold purchases and have since added significant amounts, with current holdings nearing the previous peak of 36,000 to 37,000 tonnes. Interestingly, around one-third of the annual global gold production, approximately 1,000 out of 3,000 tonnes is now being absorbed exclusively by central banks.
Still Far from Historic Levels
Despite this aggressive buying, the proportion of gold in official reserves remains much lower than it once was. Between the 1950s and 1970s, gold represented about 45 to 55% of central banks’ reserves. Today, this figure stands at just 17%. To return to the 50% mark, central banks would need to hold nearly 70,000 to 75,000 tonnes, almost double the current figure.
Real Gold Prices Are Just Catching Up
The chart (see image above) also illustrates real (inflation-adjusted) gold prices. It has taken over four decades for gold to surpass its 1980 peak. The $800 level from that time is equivalent to around $3,300 today, indicating that we have only just now achieved the same purchasing power as back then.
What This Means for the Future
The low percentage of gold in reserves, combined with steady central bank accumulation, suggests a structural demand trend that could persist for years. If this trend continues, physical demand for gold is likely to remain strong, supporting gold prices in the long run.
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