Q2 Central Bank Gold Buying 73% Above 5-Year Average

Central banks globally added a net 199.2 tons of gold in the second quarter of 2021. That was the highest level of quarterly net purchases since Q2 2019 and 73% above the five-year quarterly average, according to data compiled by the World Gold Council.

Second-quarter gold purchases by central banks dove the half-year net total to 333 tons. That’s 39% higher than the five-year H1 average.

Thailand increased its gold reserves by 90.2 tons, making that country the biggest buyer through the first half of the year. Central Bank of Thailand Governor, Dr. Sethaput Suthiwartnarueput said gold addresses the key reserve management objectives of security, return, diversification and tail-risk hedging.

Hungary was another big buyer, increasing its gold reserves by 63 tons. 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.”

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.”

Brazil was another notable buyer during H1, adding 53.7 tons of gold to its reserves between May and June. It was the first sizeable increase in Brazilian gold holdings since November 2012. The country currently holds 121.1 tons of gold (2% of total reserves), the highest level since November 2000.

Gross sales totaled 41.5 tons through the first half of the year, with five central banks reducing their gold reserves by a ton or more.

The Philippines shrank its gold reserves by 27.2 tons, while Russia (6.2 tons), Germany (3.3 tons), the UAE (2 tons), and Kazakhstan (1.9 tons) also saw gold reserves decline. Recent sales from Russia and Germany appear to be related, at least in part, to their coin-minting programs.

World Gold Council analyst Krishan Gopaul said increased demand tallies with a recent survey that found that central banks continue to be positive on gold. “We continue to expect central banks to be net purchasers for the whole of 2021.”

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.”

June saw a global net increase in gold reserves of 32 tons. Brazil led the way, buying 41.8 tons. That was offset partially by some big sales.

India jumped back into the gold market, adding 9.4 tons of gold to its hoard. It was the first big Indian buy since March. Last August, there were reports that the Reserve Bank of India (RBI) was considering significantly raising its gold reserves. India has added 28.99 tons of gold since the beginning of the year.

Other buyers in June included:

• Czech Republic – 0.5 ton
• Mexico – 0.2 ton
• Poland – 1.2 tons
• Serbia – 0.2 ton
• Uzbekistan – 5.3 tons
• Zambia – 0.1 ton

Kazakhstan was a surprise seller in June. The former Soviet republic divested itself of 19.8 tons of gold. The country has been a consistent buyer of gold over the last two years.

Turkey sold 6.8 tons of gold in June.

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