Seven Central Banks Increase Gold Reserves

Gold-buying by central banks has slowed from the record pace we saw in 2018 and 2019, but many countries continue to load up on the yellow metal.

August saw the first net global decline in central bank gold holdings, but the number was skewed by a big sale by one central bank. Overall, seven countries increased their gold reserves by a ton or more in August, tying February for the highest number of buyers in a single month this year.

Net central bank gold holding fell by 12.3 tons, according to the latest data compiled by the World Gold Council. The last time central banks were net-sellers was December 2019.

That total was skewed sharply lower by a single seller – Uzbekistan. The Uzbek central bank shrank its reserves by 32 tons. According to the WGC, Uzbekistan has ramped up gold exports in order to generate additional income to cope with the COVID-19 pandemic.

The Czech Republic also sold a small amount of gold totaling about 0.2 tons.

Combined net purchases in August totaled 19.7 tons. The Kyrgyz Republic was the month’s biggest buyer, adding 5 tons of gold to its holdings. The other gold-buyers were:

• India – 4 tons
• Turkey – 3.9 tons
• UAE – 2.4 tons
• Qatar – 1.6 tons
• Mongolia – 1.3 tons
• Kazakhstan – 1.3 tons
• Singapore – 0.2 tons

World Gold Council analyst Krishan Gopaul said that despite the drop in central bank net-gold holdings in August, he expects central banks to continue to be net-buyers moving ahead.

Diversification of reserves, particularly away from the US dollar, continues to be a driving factor, as does the ultra-low interest rate environment. And, given recent announcements from the Fed, it seems this will support central bank gold demand for some time to come.”

Gopaul was referring to the Fed’s commitment to keep interest rates at zero at least through 2023.

Citigroup and HSBC Securities recently published reports projecting an increase in central bank gold purchases next year after a drop-off in 2020. Analysts think Russia and China may well enter back into the market next year.

Earlier this year, Russia announced it would halt gold purchases effective April 1. Meanwhile, the People’s Bank of China has not reported any gold purchases in 11 months. It’s not uncommon for China to go silent and then suddenly announce a large increase in reserves. The Chinese government has hinted that it might shed more US Treasuries from its reserve holdings. It would come as no shock if the Chinese replaced US debt with gold.

After record years in 2018 and 2019, central bank gold-buying has slowed this year – although it remains strong. 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.

“Net central bank purchases have slowed down but are still positive, so there is no risk that central banks become a source of downward pressure on prices like they were in the 90s,” Bernard Dahdah, senior commodities analyst at Natixis SA, told Bloomberg.