Czech Central Bank Plans to Buy A Lot of Gold

The Czech National Bank is about to go on a gold-buying spree. Incoming CNB Governor Ales Michl said he plans to increase the bank’s gold holdings nearly 10-fold during a recent magazine interview.

The Czech National Bank currently holds 11 tons of Gold. Michl said he wants to up the central bank’s gold holdings to 100 tons over time for diversification. He said gold is good for diversification because “it has zero correlation with stocks.”

Michl will take the reins at the CNB in July.

The incoming central bank governor is following the lead of other eastern European central banks that have increased gold reserves in recent years.

In early October of last year, Poland’s central bank governor Adam Glapinski announced plans to buy an additional 100 tons of gold in 2022. In a nutshell, Glapiński said it is 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.”

He went on to discuss some of the benefits of gold as a monetary asset.

After all, gold is free from credit risk and cannot be devalued by any country’s economic policy. Besides, it is extremely durable, virtually indestructible.”

In the spring of 2021, Hungary tripled its gold reserves, buying 63 tons of the yellow metal, one of the biggest central bank buys in decades.

In a statement, MNB called gold “a crucial reserve asset.”

As it carries no credit or counterparty risks, gold facilitates reinforcing trust in a country in all economic environments, which still renders it one of the most crucial reserve assets worldwide.”

The bank cited increasing government debts and inflation worldwide as a reason to hold more gold.

The appearance of global spikes in government debts or inflation concerns further increase the importance of gold in national strategy as a safe-haven asset and as a store of value.”

Globally, central bankers have been net buyers of gold in recent months. Central banks added 84 tons of gold in Q1.

Central banks added 463 tons of gold to global reserves in 2021. That was 82% higher than 2020.

Last year was the 12th consecutive year of net purchases. Over that time, central banks have bought a net total of 5,692 tons of gold.

After record years in 2018 and 2019, central bank gold-buying slowed in 2020 with net purchases totaling about 273 tons. 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 in 2019. 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.