Six Central Banks Increased Gold Reserves in November

Six central banks added gold to their reserves in November. Purchases totaled 16.8 tons, consistent with the level of purchases in both August and September.

On net, central banks were sellers globally in November, thanks to a large decrease in reserves by the Turkish central bank, according to the latest data reported by the World Gold Council.

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.

The biggest gold buyer in November was Uzbekistan. The Uzbek central bank added 8.4 tons of gold to its reserves, matching its purchases in both September and October. The Uzbek central bank has been extremely active in the gold market in recent months. It sold 32 tons of gold in August as the country ramped up gold exports to generate additional income to cope with the COVID-19 pandemic.

Qatar (3.1 tons) and India (2.8 tons) were the other two big buyers in November.

Qatar has added to its gold reserves in each of the last six months.

In August, there were reports that the board of the Reserve Bank of India (RBI) was considering significantly raising its gold reserves. It was not a buyer in September, but made purchases in both October and November.

Other buyers in November include:

• The Euro Area – 0.1 ton
• Kazakhstan – 1.7 tons
• Malta – 0.1 tons
• Ukraine – 0.6 ton

Turkey recorded a 20.9-ton drop in its gold reserves. According to the World Gold Council, it was not a strategic decision to lower reserves. The drop in Turkey’s gold holdings was a function of higher local demand that led to increased trading between domestic commercial banks.

Mongolia was also a seller in November, lowering its reserves by 2.4 tons.

Two big players have been absent from the gold market in recent months.

Earlier this year, Russia announced it would halt gold purchases effective April 1. Up to that point, it was the world’s leading gold purchaser. The Central Bank of Russia bought gold every month from March 2015. According to Bloomberg, “Russia spent more than $40 billion building a war chest of gold over the past five years, making it the world’s biggest buyer.” In February 2018, Russia passed China to become the world’s fifth-largest gold-holding country.

Despite halting purchases last spring, for the first time ever, Russia holds more gold than US dollars thanks to surging gold prices.

The People’s Bank of China has not reported any gold purchases in 12 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.

Is the trend of central bank gold buying beginning to reverse? The World Gold Council doesn’t think so.

We do not believe that central banks have shifted their mindset towards gold. Gold’s performance in 2020 (+25%) boosted reserve portfolios when it was needed. Our central bank survey conducted last year showed that gold’s role as a risk-mitigation asset is highly valued. While some uncertainty has eased in recent months (e.g., the US election and Brexit), the economic impact of the pandemic still poses significant risks which need to be managed.”

Despite recent net selling, central banks remain on course to finish 2020 as net purchasers, making it 11 consecutive years since they were last net sellers on an annual basis.

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