After Three Months Declining Reserves Central Banks Became Net Gold Buyers Again in June

After three straight months of net sales, central banks globally became net buyers of gold again in June.

On net, central banks bought 55 tons of gold in June as the Central Bank of Turkey switched from selling back to buying, according to the most recent data compiled by the World Gold Council.

Over the previous three months, Turkey reduced its gold holdings by 160 tons. According to the World Gold Council, this was a specific response to local market dynamics and didn’t likely reflect a change in the Turkish central bank’s long-term gold strategy. “Gold was sold into Turkey’s domestic market to satisfy very strong bar, coin and jewelry demand following a temporary partial ban on gold bullion imports, a WGC report said.

According to a Reuters report, the Turkish government suspended some gold imports in February in an effort to soften the economic impact of significant earthquakes.

In June, the Central Bank of Turkey flipped back to buying, adding 11 tons of gold to its reserves.

According to the World Gold Council, “The bank’s activity underlined and clarified the continuing trend in central bank gold demand.”

The People’s Bank of China was the largest gold buyer in June, adding 21 tons to its gold reserves. It was the eighth consecutive month of buying for the Chinese central bank. Since it began officially reporting increases in November 2022, official Chinese gold reserves have grown by 165 tons.

China has a history of adding to reserves and then going silent.

The People’s Bank of China accumulated 1,448 tons of gold between 2002 and 2019, and then reported nothing for more than two years before resuming reporting last fall.

Many speculate that the Chinese continued to add gold to its holdings off the books during those silent years.

In fact, there has always been speculation that China holds far more gold than it officially reveals. As Jim Rickards pointed out on Mises Daily back in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE).

Last year, there were large unreported increases in central bank gold holdings.  Central banks that often fail to report purchases include China and Russia. Many analysts believe China is the mystery buyer stockpiling gold to minimize exposure to the dollar.

The National Bank of Poland (NBP) was another big gold buyer in June, adding 14 tons to its holdings. It was the third straight month of gold buying for the Polish central bank. Since resuming purchases in April, the NBP has added 48 tons, pushing its total gold holdings to 277 tons.

In the fall of 2021, Bank of Poland President Adam Glapiński said the central bank planned to add 100 tons of gold to its reserves in 2022. It’s unclear why the bank didn’t follow through. The recent purchases could signal the beginning of another round of buying to reach that 100-ton goal.

When he announced the plan to expand its gold reserves, Glapiński said holding gold was a matter of financial security and stability.

Gold will retain its value even when someone cuts off the power to the global financial system, destroying traditional assets based on electronic accounting records. Of course, we do not assume that this will happen. But as the saying goes – forewarned is always insured. And the central bank is required to be prepared for even the most unfavorable circumstances. That is why we see a special place for gold in our foreign exchange management process.”

Uzbekistan switched from selling to buying in June, adding eight tons of gold to its reserves. Uzbekistan, along with its neighbor Kazakhstan, was among the most notable sellers in the first quarter of 2023. Kazakhstan continued to sell gold in June, lowering its reserves by 3 tons.

It is not uncommon for banks that buy from domestic production – such as Uzbekistan and Kazakhstan – to switch between buying and selling.

Other buyers in June were:

• The Czech Republic – 3 tons
• Qatar – 2 tons
• India – 1 ton
• France – 0.1 ton

The only notable seller besides Kazakhstan was Singapore with a 1-ton reduction in its reserves.

Even with Turkey’s big sales earlier this year, net central bank gold purchases totaled 387 tons through the first half of the year. That was the highest first-half total since the organization started compiling quarterly data in 2000. This continued the trend of increasing gold reserves we saw last year.

Total central bank gold buying in 2022 came in at 1,136 tons. It was the highest level of net purchases on record dating back to 1950, including since the suspension of dollar convertibility into gold in 1971. It was the 13th straight year of net central bank gold purchases.

According to the 2023 Central Bank Gold Reserve Survey recently released by the World Gold Council, 24% of central banks plan to add more gold to their reserves in the next 12 months. Seventy-one percent of central banks surveyed believe the overall level of global reserves will increase in the next 12 months. That was a 10-point increase over last year.