Central bank gold purchases hit a level not seen since 2008 through the first two months of 2019.
Central banks added 90 tons of gold in the first two months of this year according to the latest report by the World Gold Council. This compares to 56 tons through the first two months of 2018 and ranks as the highest rate of growth since 2008.
We’ve been following a number of central banks that have been buying gold recently, specifically the Russians and Chinese. But these two central banks aren’t alone. In fact, central bank gold-buying has surged over the last couple of years. What’s behind this trend?
Russia continues to buy gold as it seeks to minimize exposure to the US dollar.
According to information released by the Central Bank of Russia last week, it purchased another 31.1 tons of gold in February, bringing its total reserves to 2,149 tons.
China added to its official gold reserves for the third straight month in February as the country continues efforts to minimize its exposure to the US dollar.
The People’s Bank of China added 10 tons of gold to its horde last month. It has accumulated an additional 32 tons of the yellow metal since the beginning of the year. According to the Financial Times, at this rate, China will surpass Russia and Kazakhstan as the leading central bank buyers.
Russia is considering eliminating its value-added tax (VAT) on gold purchases. According to a Russian paper, this could increase gold demand in the country by 50 to 100 tons per year.
Russia currently charges a 20% tax on all gold bar purchases, and investors do not get the tax back when they sell their gold.
During a speech at the lower house of the Russian parliament, the CEO of the country’s key trading floor suggested Russian investors should replace investments they’ve made in dollars with gold.
“Let’s offer an alternative to the US dollar in the form of Russian gold, which we produce… investment gold,” Moscow Exchange (MOEX) CEO Alexander Afanasiev said.
China officially added gold to its reserves last month for the first time in two years. Meanwhile, the Chinese have been shrinking their holdings of US Treasuries. According to the Nikkei Asian Review, the moves are intended to reduce dependence on the US dollar.
According to data released by the People’s Bank of China, the country’s gold reserves totaled 1,862 tons at the end of 2018. That represents a 10-ton increase from the previous month and the first rise in the country’s hoard since June 2016.
Russia added another 36.6 tons of gold to its reserves in November, according to the latest data released by the World Gold Council.
This follows on the heels of a 29.9-ton increase to its hoard in October and a 37.8-ton increase in September.
The Russians have an alternative money transfer system up and running, and according to a report in RT, it has now surpassed SWIFT in popularity in that country. This is part of a broader effort by countries like Russia and China to limit their dependence on the US dollar and set up alternative financial channels outside of the global dollar system.
For the last 10 years, central banks have been on a gold-buying spree. At least some of them have.
On net, central banks globally added 193.3 tons of gold during the first half of 2018, according to World Gold Council data. That represents an 8% increase over 2017. The last time we saw this kind of central bank buying was in the 1950s, but as a report published by Forbes points out, the motivations are much different now than they were then.