Gold Volatility Surges, Central Bank Buying May Slow
Goldman Sachs reports that gold price volatility has surged significantly. The bank also expects central banks to temporarily slow their gold purchasing activities.
- The heightened volatility is largely attributed to private-sector activity, particularly the use of call options. This dynamic forces dealers to buy gold to hedge their positions as prices rise and sell when they fall, amplifying the price swings. - This caution from central banks comes after a historic buying spree; they added over 1,000 tonnes to their reserves annually in 2022, 2023, and 2024, marking the third consecutive year of such high-volume purchases. - The primary strategic driver for this long-term accumulation is de-dollarization, as central banks seek to diversify their reserves away from the U.S. dollar, a trend that gained momentum after Russian assets were frozen. - Key emerging market players have been leading this charge, with the People's Bank of China reportedly buying gold for 15 consecutive months and other significant purchases coming from Poland, Turkey, and India. - Data from December 2025 illustrates the slowdown, with central bank purchases dropping to 22 tons, which is less than half of the 12-month average of 52 tons. - Inflows into global gold Exchange Traded Funds (ETFs), especially from momentum-driven investors in Asia, have also been a significant contributor to the increased price volatility. - Despite the temporary pause, Goldman Sachs maintains a long-term bullish forecast, predicting gold could reach $5,400 per ounce by the end of 2026, assuming volatility subsides and central bank purchasing resumes. - This period of heavy purchasing marks a major reversal from the 1990s and 2000s, when central banks were net sellers of gold until the trend shifted following the 2008 financial crisis.
