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Central Bank Gold-Buying Binge Continues

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Central banks added more gold to their reserves last month, continuing a trend that stretches back into last year.

Globally, central banks added another 31 net tons of gold in March, according to the latest report by the World Gold Council based on International Monetary Fund data. That brings the total increase in central bank gold holdings this year to 145.5 tons.

Gross gold purchases globally totaled 38 tons, with four central banks reporting an increase of one ton or more. Gross gold sales came in at 7 tons.

Ongoing trade tensions and economic sluggishness remain the driving factors behind this continued diversification through gold,” according to the WGC.

Central bank gold purchases hit a level not seen since 2008 through the first two months of this year, totaling 90 tons. Central banks continued their gold-buying binge in March.

Russia was once again the biggest buyer of the yellow metal. The Central Bank of Russia added 19.4 tons according to IMF data. This is slightly higher than the 18.7 tons reported by the bank itself earlier this month. This boosts the country’s gold reserves to 2, 167.9 tons or 69,700,000 ounces. Gold now makes up about 18% of the Russian central bank’s reserves.

“You see we try to diversify our international reserves composition. Because we estimate all the possible risks, economic and geopolitical risks,” Central Bank of Russia Governor Elvira Nabiullina told CNBC in an interview last week.

China also continued to add gold to its stash with an increase of 11.2 tons, according to the WGC. This figure matched information released by the People’s Bank of China. With the most recent purchases, the Chinese official gold reserves stand at about 1,884 tons or 60.62 million ounces. The Chinese have been adding gold to their reserves over the last several months as they continue “diversify their reserves.”

When central bankers in countries like China and Russia talk about diversification, they really mean de-dollarization. For instance, Russia has been endeavoring to reduce its exposure to the dollar over the last several years by buying gold and selling US Treasurys. Russian gold reserves increased 274.3 tons in 2018, marking the fourth consecutive year of plus-200 ton growth.  And in the spring of 2018, the Russians sold off nearly all of its US Treasury holdings. According to Bank of America analysts,  the amount of US dollars in Russian reserves fell from 46% to 22% in 2018.

Other central banks that bought gold in March were Kazakhstan (5.4 tons), Kyrgyz Republic (0.5 tons), Mexico (0.1 ton), and Turkey (1 ton).

Argentina was the big seller, shedding 6.8 tons of gold from its reserves.

Central bank gold purchases in March continue a trend we saw through 2018. In total, the world’s central banks accumulated 651.5 tons of gold last year. The World Gold Council noted that 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record.

In its Gold Demand Trends Full year and Q4 2018 report, the World Gold Council said it expects central bank gold buying to continue into 2019.

Despite a decade passing since the global financial crisis, times seem no less certain. Central banks reacted to rising macroeconomic and geopolitical pressures by bolstering their gold reserves. These actions are consistent with a recent survey commissioned by the World Gold Council: 76% of central banks view gold’s role as a safe haven asset as highly relevant, while 59% cited its effectiveness as a portfolio diversifier. And almost one-fifth of central banks signaled their intention to increase gold purchases over the next 12 months.”

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