Gold buying by central banks, an important driver of bullion's advance in recent years, is forecast to pick up in 2021 after a slowdown this year.
Citigroup sees demand from the official sector rising to about 450 tonnes after a drop to 375 tonnes this year, which would be the lowest in a decade. HSBC Securities (USA) Inc expects a slight uptick to 400 tonnes from an estimated 390 tonnes this year, potentially the second-lowest amount in 10 years.
While the forecasts are far from the near-record purchases of more than 600 tonnes seen in both 2018 and 2019, increased central bank activity will bolster bullion. Russia could return to the market in the second quarter next year, and China's central bank may resume adding to reserves after the US elections, Citi said.
This development may have a bigger impact on the market if exchange-traded funds -- key drivers of demand in 2020 -- slow their buying as global economies recover from the pandemic.
"Although official sector gold demand was quite robust in 2019 and 2018 and is softer this year, it is not necessarily weak by historical standards," said James Steel, chief precious metals analyst at HSBC.
Bullion prices and ETF assets surged to a record in 2020 as investors sought havens amid the pandemic, looser monetary policy and the potential debasement of fiat currencies. Spot gold has since dropped from its all-time high and in September recorded the biggest monthly loss since 2016, but still made an eighth quarterly gain, supported by sustained flows into ETFs.
Colombia and Uzbekistan have been among countries that reduced their gold reserves, and the Philippines is considering selling. Russia ceased purchases in April, while it's been almost a year since China disclosed any moves.
"Net central bank purchases have slowed down but are still positive, so there is no risk that central banks become a source of downward pressure on prices like they were in the 1990s," said Bernard Dahdah, senior commodities analyst at Natixis SA.
While central banks have been net buyers for 10 straight years, demand has become more concentrated, with fewer banks adding to reserves in 2020, according to Shaokai Fan of the World Gold Council. WGC data show that purchases fell 39% to 233 tonnes in the first half from the same period a year ago.
Each central bank determines the gold allocation that is optimal for its own situation, Mr Fan said.