Central Banks Buy Record Gold in Q1 2024, Why Not Bitcoin?

Central banks worldwide purchased 483 tonnes of gold during the first half of this year.

Key Takeaways

➔ The record demand led to a gold rush as the precious metal reached its ATH last month.

➔ Even Bitcoin reached its ATH this year in March, outperforming gold.

➔ So, why are banks investing in gold instead of Bitcoin?  

The global market witnessed a gold (XAU) rush last month as the metal hit an all-time high (ATH) of $2,531 per troy ounce on 20th August. What drove the bullish run for gold was a very high demand from central banks from around the world, amongst other factors.

During the first half of 2024, central banks worldwide made net gold purchases worth 483 tonnes — a record so far. The figure is 5% higher than the previous record of 460 tonnes in the first half of 2023. Central banks bought 183 tonnes of gold during the second quarter of the year, a growth of 6% year-over-year (YoY).

The figure is 39% lower than the 300 tonnes of purchases seen in Q1 2024.

Source: X/The Kobeissi Letter

So, which banks were the largest buyers of gold during the first half of this year?

• National Bank of Poland,

• Reserve Bank of India, and

• Central Bank of Turkey.

As there is a growing trust deficit regarding Western reserve assets, countries like China, India, Russia and Saudi Arabia prefer to opt for gold, seemingly the only neutral and non-volatile reserve asset. Gold has seen an appreciation of 23% in its value year-to-date (YTD). In contrast, the S&P 500 index has surged only 18% YTD.

Bitcoin Outperforms Gold

An even better performing asset has been Bitcoin (BTC). The first cryptocurrency has shown an appreciation of 37% in its value YTD. Like gold, Bitcoin also hit its ATH this year when it reached $73,780.07 mid-March. So, why have central banks not bought Bitcoin instead of gold?  

The answer lies in the highly volatile nature of the crypto market and that of Bitcoin in particular. Crypto is gaining official recognition in several countries as new regulation and tax policies are being legislated, taking digital assets into account. Institutional investors have also shown immense interest in Bitcoin, with the launch of Bitcoin exchange-traded funds (ETFs) in the United States and other countries.

One cannot simply look away from the bigger picture. BTC’s price has declined by 23% since hitting its record high in March. Due to this volatility, government bodies continue to keep a distance from Bitcoin.