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More Central Banks Dip Into Gold Market Adding Gold to Reserves

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Central banks globally added another net 56.7 tons of gold to their reserves in May as more banks dip into the gold market, according to the latest data compiled by the World Gold Council.

Gold-buying by central banks slowed last year from the record pace we saw in 2018 and 2019. That trend has continued into 2021, but buying is ahead of last year’s pace as many countries continue to load up on the yellow metal.

According to a WGC analyst, “The steady buying in recent months stands in contrast to the more inconsistent picture from mid-2020 when central banks switched between net buying and selling.”

For the second straight month, Thailand was the biggest central bank gold buyer, adding another 46.7 tons of gold to its reserves in May. That follows on the heels of a 43.5-ton increase in April. Thailand has boosted its gold reserves by 60% since March, bringing its total holdings to 244.2 tons. Bank of Thailand Governor Sethaput Suthiwartnarueput said gold addresses the bank’s key objectives of security, return, diversification and tail-risk hedging.

This is the third straight month we’ve seen a large purchase by a single bank. In March, Hungary bought 63 tons of gold, tripling its reserves. It was one of the biggest central bank gold buys in decades. In a statement, the National Bank of Hungary 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.”

Brazil jumped into the gold market in May, buying 11.9 tons of the yellow metal. This was the first significant increase in Brazil’s gold reserves since 2012. Its total holdings now stand at 79.3 tons. That’s the highest level since November 2000.

Turkey added another 8.6 tons of gold to its reserves in May. It was the second month of gold buying after several months of selling. Over the previous five months, the Turks sold 55.2 tons of gold, significantly skewing global net central bank gold holdings downward. Turkey has been dealing with a currency crisis.

Kazakhstan has been a steady gold buyer over the last couple of years. That trend continued in May as the Kasakh bank added 5.3 tons of gold to its reserves. It was the largest Kazakh purchase since June 2020.

Other buyers in May included:

India – 0.9 tons

Malta – 0.1 tons

Poland – 1.9 tons

Zambia – 0.1 tons

There was some selling in May with gross sales totaling 18.9 tons. After 8 months of buying, Uzbekistan saw the largest fall in gold reserves, of 11.5 tons. The Kyrgyz Republic (4.5 tons), Germany (2 tons), and Mongolia (0.7 tons) were the other major sellers during the month.

Germany’s reserve decrease is related to a government coin minting program.

Meanwhile, the Bank of Ghana announced plans to increase its gold reserves through a program to buy locally produced gold. Ghana now ranks as the number six gold producer in the world and the biggest producer in Africa. Ghana Vice President Bawumia said gold would help shore up the value of the local currency.

According to the WGC’s Central Bank Gold Reserves Survey, 21% of the world’s central banks plan to add gold to their reserves in the coming year. That’s one percentage point higher than last year.

The survey also revealed deteriorating faith in the US dollar and a continuing trend toward de-dollarization.

Respondents continue to foresee long-term structural changes in the international monetary system, continuing a trend indicated in last year’s survey. Views toward the US dollar trended downward, with half of respondents saying the greenback will fall below its current proportion. Central banks continue to think that the Chinese renminbi’s proportion will increase, with 88% saying that it will grow beyond current levels.”

HSBC chief precious metals analyst James Steel said, “If a central bank is looking at diversifying, gold is a marvelous way of moving out of the dollar without selecting another currency.”

After record years in 2018 and 2019, central bank gold-buying has slowed in 2020 with net purchases totaling about 273 tons. It was the 11th straight year of net growth in central bank gold reserves.

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.

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