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Central Bank Gold Purchases Hit Highest Level Since 2008

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Central bank gold purchases hit a level not seen since 2008 through the first two months of 2019.

Central banks added 90 tons of gold in the first two months of this year according to the latest report by the World Gold Council. This compares to 56 tons through the first two months of 2018 and ranks as the highest rate of growth since 2008.

Globally, central bank gold holdings increased by a net 51 tons in February.  It was the largest net increase in central bank gold reserves since October 2018.

According to the WGC, a move to diversify reserves is driving the increased pace of central bank gold accumulation.

Diversification remains the key motivation for central banks to buy gold, as ongoing geopolitical and economic uncertainty continue to cast a shadow over the future.”

Gross gold sales by central banks in February came in at a minimal 0.2 tons.

Nine central banks, led by Russia, made significant gold purchases in February.

  • Russia – 31.1 tons
  • China –  10 tons
  • Columbia – 0.7 tons
  • India – 1.7 tons
  • Kazakhstan – 3 tons
  • Kyrgyz Republic – 0.2 tons
  • Qatar – 3.1 tons
  • Turkey – 1 ton
  • Ukraine 0.3 tons

February central bank gold purchases 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.”

China continued to buy gold in March, adding another 11.2 tons to the 10 tons it bought in February.

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 off 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.

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