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LAWRIE WILLIAMS: Central Bank gold buying – New kids on the block

Over the past few years one of the most cited demand elements in the gold supply/demand equation has been the switch from the world’s central banks’ positions as gold sellers to being gold buyers.  However there have actually been very few reported buyers, but those which have been buying are, for the most part, significant ones – namely China (which is probably still adding to its reserves but not reporting this to the IMF) and Russia (which has been adding to reserves at a rate of  over 200 tonnes a year).  Kazakhstan has also been a consistent gold buyer, currently taking in around 4 tonnes a month into its reserves, but a small number of other central bank purchasers have not, in total, been adding what could be considered significant amounts until the past year or so.  The vast majority of the 100 countries for which the IMF publishes in its monthly tables of global gold holdings, consistently report zero changes in their holdings

But. against the zero increase trend, the Turkish central bank has now for the past couple of years added significant amounts to its reported holdings. And recently three more central banks appear to have joined the array of gold purchasers – India, Poland and, as recently announced, Hungary.

India has had a long association with gold and will be remembered as buying 200 tonnes of gold from the IMF back in 2009, but since then its central bank gold purchases have been mostly dormant – until last year when it added a small amount (0.3 tonnes) to its reserves while it has added 15 tonnes up until August this year according to IMF figures as published on the World Gold Council website.

China and Russia both appear to see additions to their gold reserves as a counter to the dominance of the U.S. dollar and dollar related securities in their foreign exchange (forex) holdings.  They also perhaps foresee a new principal reserve currency, which includes gold in its matrix, coming out of the IMF in the near future and a more dominant position for gold in any future global financial re-alignment.  India may be moving closer to China and away from its reliance on the U.S. which may have partly prompted its recent purchases.

The two east European nations which have recently announced increases in their gold reserves, Poland and Hungary, are both EU members, but are potentially at loggerheads with the EU parliament, hierarchy and rules.  Hungary in particular is an interesting case as its central bank purchased 28.4 tonnes of gold during the first two weeks of October, thus raising its gold holdings ten-fold.  It is the first time Hungary has bought gold in 32 years! Perhaps Poland and Hungary both foresee a possible fracture in the EU prompted by the U.K.’s probable break-away (Brexit) which is supposed to come into force next year and are looking to protect themselves from any concurrent financial fall-out.

In a press release issued on the announcement (translated by Ronan Manly of BullionStar) the bank noted “Gold is not only for extreme market environments, structural changes in the international financial system, and deeper geopolitical crises. Gold also has a confidence-building effect in normal times, that is, gold can play a role in stabilizing and defending.”  

This kind of added interest from central banks with respect to gold as a defensive measure in an increasingly contentious political environment has to be yet another positive for gold. the prcious metal appears to be consolidating close to the $1,230 level after its recent leg up from the $1.180s.  With the Dow, S&P and NASDAQ all opening sharply down again today, and European stocks also trending downwards, a wider move into safe haven assets like gold could well keep the yellow metal rising in the short to medium term - and we have always rated the longer term prospects for the metal as being very poisitive..

 

17 Oct 2018

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com

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