The persistently strong physical demand for precious metals such as platinum and silver this year has demonstrated how sensitive global supply chains can be. So far, comparable dislocations have been absent in the gold market – but according to commodity analysts at Société Générale, this could change. In a recent report, the French investment bank warns that central bank gold purchases carry the potential for another short squeeze in the gold market.
The focus here is on the high physical demand from the so-called official sector: Globally, central banks have expanded their gold reserves by approximately 1,000 tons each over the past three years. Even in 2025, according to the World Gold Council, the increase is expected to be significantly above the long-term average, with up to 950 tons – despite a slight decline compared to previous years.
Gold: Central Banks as Drivers of a Potential Supply Shortage
In its analysis, Société Générale emphasizes that the gold market is increasingly shaped by the discrepancy between physical metal and “paper gold.” A large part of the trading volume is accounted for by exchange-traded products, futures markets, and over-the-counter derivatives. However, the analysts warn that central banks’ growing appetite for physical gold could shift this balance.
A central scenario from the bank: If central banks were to reallocate just an additional 1% of their total currency reserves into gold – without reducing other foreign currency holdings – this could trigger a veritable “gold frenzy.” China alone would require approximately 276 tons in this model. Across all countries considered, the additional volume, according to Société Générale’s calculations, would total approximately 762 tons.
Distributed over three years, this would correspond to approximately 64 tons per quarter – a volume that nearly mirrors the scenario in which foreign investors reduce their US dollar positions and reallocate a portion into gold. For the analysts, this is a clear signal that even small percentage shifts in reserve strategies can have significant effects on physical supply.
At the same time, they point out that central banks’ previous purchases have already contributed to the formation of higher support zones. With each major market breakout, new price ranges have been established where central banks are willing to build up additional gold positions.
Central Bank Gold Purchases and China’s Role
At the center of the discussion is China, which has been considered one of the most important players in the gold market in recent years. According to Société Générale’s assessment, the country will further expand this role.
The analysts refer to the broader macroeconomic background: Many states are striving to reduce their dependence on the US dollar in view of rising geopolitical tensions and trade conflicts. Gold is considered a reserve asset without counterparty risk and without direct ties to a specific economy.
However, central bank demand is only partially transparent. According to the World Gold Council, approximately 66% of official gold purchases in the third quarter were not reported. Many central banks publish their transactions with a delay or only to a very limited extent, forcing market observers to rely on indirect data sources.
Based on trade flows, Société Générale estimates that China could purchase a total of up to 250 tons of gold this year. This would account for more than a third of global central bank demand. The discrepancy between imports and officially reported reserves is striking: While China imported approximately 10 tons of gold from the United Kingdom in September, according to British data, official reserve statistics showed an increase of only 1 ton during the same period.
Gold Market in Focus: Trade Flows, UK Exports, and LBMA Holdings
To better assess unofficial demand, Société Générale’s commodity experts particularly analyze gold exports from the United Kingdom. As an LBMA trading hub and storage location, London is a central node in global gold trade, providing valuable insights through British foreign trade data.
The latest figures from the British statistical authority indicate a certain weakening of export activity: In September, 55.4 tons of gold were exported from the United Kingdom – approximately 15 tons less than in the same month of 2023 and about 70 tons below the seasonal average. In October, typical exports average around 140 tons; the corresponding data is expected to be published in mid-December.
The analysts are particularly closely monitoring shipments to China. British statistics show 15 tons of gold exports to the People’s Republic for September, following 10 tons in August. However, the September value averaged approximately 47 tons for the years 2022 to 2024. September 2025 thus marks the lowest level since the beginning of this observation period. Seasonally, around 60 tons would even be expected for October.
For Société Générale, the combination of overall robust central bank purchases, subdued export figures, and fluctuations in physical trade indicates that a potentially tense market situation could be building in the background. The analysts emphasize that periods of falling prices – particularly in the second half of October – offer central banks new entry opportunities, thereby attracting additional physical demand.
Outlook: Gold Market between Paper Trading and Physical Demand
The central message of the report: The gold market is increasingly operating in a field of tension between extensive paper positions and growing physical demand, which is partly difficult to quantify. While platinum and silver have already shown this year how quickly supply chains can tighten, Société Générale’s experts do not yet see the gold market in a comparable situation – but they do not rule out a similar development.
Should further central banks adjust their reserve strategy and – as outlined in the bank’s model – reallocate only a small additional portion of their holdings into gold, this could noticeably tighten the available physical supply. At the same time, pressure on positions traded in the futures market could increase if physical deliveries are in higher demand.
