How does the central bank purchase and store gold?

As global central bank gold reserves approach levels seen during the Bretton Woods system, their gold purchasing channels and storage strategies are undergoing profound changes.

According to a macro deep report released on December 26 by the analyst team led by Zhou Junzhi from CSC, 2025 is an unavoidable year in the history of gold. Currently, global central bank gold reserves have reached 36,000 tons, nearing the high levels of the Bretton Woods system era. At market prices, "the value of gold has surpassed $4 trillion." More significantly, "last year, gold accounted for 20% of global foreign exchange reserves, surpassing the 16% of the euro, and becoming the second-largest reserve asset globally, next to the 46% of the US dollar."

Against the backdrop of a significant rise in gold prices, central banks, as "a purchasing force that cannot be ignored," are drawing heightened market attention to their operational details. The report points out that in recent years, central bank gold purchases have not only been large in scale and rapid in speed but have also exhibited unconventional operations such as "gold returning home." However, there is often a lack of systematic understanding in the market regarding the micro details of how central banks buy gold and where they store it. In particular, "the data provided by the World Gold Council, which is currently commonly known, does not represent the full picture of central bank gold purchases," as some strategic demand-based increases are hidden outside traditional tracking channels.

The Secret Buyers: How Do Central Banks "Stock Up"?

Analysts Zhou Junzhi and Chen Yi from CSC detailed the micro mechanisms of central bank gold purchases in the report. Central banks primarily increase their gold holdings through two methods: one is through the global over-the-counter (OTC) market, and the other is by purchasing gold produced domestically.

"Non-Physical Movement" in the London OTC Market

The World Gold Council points out that "the most common way for central banks to increase gold for their international reserves is through purchasing gold in the over-the-counter (OTC) market."

This mainly occurs in the London market, where central banks trade through banks certified by the London Bullion Market Association (LBMA). It is noteworthy that such large-scale transactions are often conducted quietly. The report describes: "In the London market, a significant amount of gold trading is completed through 'non-physical movement.' When a central bank buys gold from a counterparty, these gold bars may not physically change location, but rather, ownership is transferred within the clearing system."

"Invisible" Local Direct Procurement

In addition to the international market, some resource-rich countries choose "to be close to the water."

The report cites the example of the Central Bank of the Philippines "directly purchasing unrefined gold from small domestic producers," while the Central Bank of Uzbekistan "has a priority purchasing right for locally produced gold." The key to this model lies in its concealment: "Purchasing gold through non-LBMA channels does not utilize foreign exchange reserves and typically does not result in changes to the amount of US Treasury holdings in the relevant countries. The local direct procurement method usually does not involve changes in trade flows, making tracking relatively more difficult."

In addition, central banks rarely purchase gold through ETFs. The report emphasizes that due to the requirements for safety and liquidity, "central banks find it difficult to use gold ETFs as a mainstream channel to increase gold exposure," because ETFs introduce credit risks from issuing institutions and custodial banks, which contradicts the "central banks' requirement for 'zero credit risk' for reserve assets."

Where Has the Gold Gone: The Three Pillars of Global Custody

After purchasing gold, storage is another strategic issue. The report points out that "the management of global gold storage is a diversified system composed of central banks, commercial banks, and specialized custodial institutions from various countries."

Currently, the global central bank gold custody has formed a three-pillar structure: the New York Federal Reserve, the Bank of England, and the Bank for International Settlements (BIS). This structure is the result of "historical choices, market practices, and geopolitical interactions."

• New York Federal Reserve: Holds the world's largest gold vault. The report states, "After World War II, the Bretton Woods system established a link between the dollar and gold, and countries stored gold in New York for trading convenience, forming a path dependence."
• Bank of England: As the global center for gold pricing and trading, its vault holds a large amount of official gold.
• Bank for International Settlements: Known as "the central bank of central banks," it does not operate a vault itself but provides key custody and settlement services.

Although not all countries disclose details, according to estimates by Singapore precious metals trader Bunker Group, "the United States and the United Kingdom are the world's largest gold custodians, with the gold stored in both countries accounting for about 53% of global gold reserves."

Strategic Changes: "Gold Homecoming" and Data Black Box

In terms of storage mode selection, central banks are showing clear strategic differentiation, mainly divided into three models:

1. Domestic Storage (emphasizing sovereignty): Such as China, Russia, France, etc. The report mentions, "The vast majority of our country's gold reserves are stored domestically, with a small amount possibly stored at the Bank for International Settlements or other financial institutions with strategic partnerships for international transaction needs."
2. Diversified Storage (balancing risks): Such as Germany, Italy, and other European countries, which, due to historical reasons and liquidity management, have their gold spread across New York, London, and other locations.
3. Non-disclosure of Locations: Such as Japan, Thailand, etc.

A noteworthy market signal is the trend of "gold homecoming." The report points out that "against the backdrop of enhanced financial sovereignty awareness, central bank gold reserves have also shown a dynamic balance." A typical case includes Germany, which "repatriated 674 tons of gold in batches from New York and Paris between 2013 and 2017." The Reserve Bank of India will "transfer over 65% of its gold reserves to domestic storage" by 2025.

This strategic adjustment has led to a "black box" effect in market data. The report analyzes that there is a periodic divergence between the data from the World Gold Council and the declarations from the IMF. On one hand, due to security concerns, "some central banks may delay or choose not to disclose their gold purchases, leading to an underestimation in the IMF's 'reported data'"; on the other hand, purchasing channels outside the LBMA system (such as buying domestic gold with local currency) are beyond the traditional monitoring system. This means that the public data seen by investors may only represent a part of the true landscape of global central bank gold purchases.

Risk Warning and Disclaimer

The market has risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk