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Central Banks Add More Gold in June

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Central banks added another net 18.1 tons of gold to their reserves in June, according to the latest data from the World Gold Council. The net total was pulled down by a significant sell-off by Columbia’s central bank.

Through the first half of 2020, central bank net purchases of gold totaled about 233 tons. That was 39% lower year-on-year. The lower rate of purchases in 2020 was expected given the strength of central bank buying both in 2018 and 2019. The economic chaos caused by the coronavirus pandemic has also impacted the market.

Central bank demand came in at 650.3 tons last year. That was the second-highest level of annual purchases for 50 years, just slightly below the 2018 net purchases of 656.2 tons. According to the WGC, 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.

The World Gold Council bases its data on information submitted to the International Monetary Fund.

Continuing a trend we’ve seen throughout 2020, Turkey led central bank gold-buying in June, adding 22.2 tons. That brings its total reserves to roughly 583 tons. Turkey has surpassed Russia as the world’s top gold buyer. According to the Nikkei Asian Review, concerns that it could be barred from dollar settlements due to rising tensions with the US have driven Turkey’s quest for gold. The country has also struggled with a depreciating currency. The Turkish lira dropped to all-time lows in early May. Analysts told CNBC  that rapidly shrinking foreign reserves, inflation and currency devaluation are showing no signs of abating. The Turkish central bank is frantically trying to backstop its currency. Meanwhile, Turkey is selling dollars. According to Bloomberg,  state banks sold roughly $1.1 billion of foreign currency in just two days in May.

After selling gold three straight months, Kazakhstan became a buyer again in June, adding 5.8 tons of metal to its reserves.

The Czech Republic was also a buyer with purchases totaling 1.2 tons.

India has been a buyer of late but its reporting has lagged. The Indian central bank bought 2.8 tons of gold in May that was not included in that report. On the year, India has added 22.7 tons of gold to its reserves.

Earlier this year, Russia announced it would halt gold purchases effective April 1. Through June, it had held to that commitment. There was immediate pressure on the bank to resume purchases. In early April, Russian banks asked the Central Bank of Russia to resume buying gold for its reserves as gold exports were hobbled by the coronavirus pandemic. In a letter released on April 29, the Russian central bank said it did not see any need to resume buying gold at the time, but added it would continue to monitor the situation in both the global gold market and the banking sector.

For the ninth straight month, the People’s Bank of China did not report any gold purchases.  It’s not uncommon for China to go silent and then suddenly announce a large increase in reserves.

Many analysts believe 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). Given the political dynamics and the ongoing trade war, it seems unlikely the Chinese suddenly stopped increasing their gold reserves in 2016.

The Columbian central bank sold 8.8 tons of gold in June. Mongolia was also a seller, divesting itself of 2.3 tons of gold.

Gross sales of gold by central banks was a modest 42.5 tons through the first half of 2020.

On the year, central bank gold-buying has fallen slightly below the average pace since 2010. A senior analyst for commodities at HDFC Securities called it a “temporary pause.”  He said this isn’t surprising given the economic slowdown and we could even see some selling as countries try to cope with coronavirus. “The major central banks from the world have bought record gold in the year of 2019, which was the highest in 50 years. The exhausted limit of gold buying from most of the central banks has resulted in a slowdown in H1 2020,” he added.

The Nikkei Asian Review speculated that we could see an increase in gold purchases by emerging market central banks as the dollar depreciates.

With Treasury yields now close to zero, ‘managing other assets will likely generate higher rates of return, and there is a potential of a growing opportunity cost of holding US debt,’ said Daisuke Karakama, chief market economist at Mizuho Bank.”

The World Gold Council 2020 Central Bank Survey found that 20% of central banks globally plan to expand their gold holdings in 2020.

Factors related to the economic environment – such as negative interest rates – were overwhelming drivers of these planned purchases. This was supported by gold’s role as a safe haven in times of crisis, as well as its lack of default risk.”


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