LAWRIE WILLIAMS: Central Bank Gold Purchases. Where we are and will they continue?

An important element in gold demand over the past three years has been continuing officially-reported purchases of gold by some national central banks and quite probably, unreported purchases by others.  Per contra, what we don’t know is whether there have also been corresponding unreported sales of gold by some central banks – and, because of the accounting systems in place, how much of central bank published gold reserves are actually not readily available due to gold leasing and swap arrangements currently in place.

While always officially denied, the recent spate of gold reserve repatriations by some nations does suggest there is too little transparency on the state of the gold holdings within the principal vaulting nations which hold other countries’ gold reserves – the U.S. the U.K. and France – and there is the possibility of more such gold movements ahead – either flagged in advance as with the German gold repatriations, or announced as a fait accompli after the event as with The Netherlands.  Central banks are, and probably always will be, somewhat reticent regarding their true reserve positions.  Any breaking of the ranks in this respect and any doubts as to the veracity of the true gold holdings figures are naturally suppressed as a destruction of confidence in the integrity of any central bank would likely snowball into a distrust of all.  And in global finance and economics perception of integrity of key players is probably the most important factor of all.

Central banks are officially continuing to buy gold in aggregate at a rate of between 300-500 tonnes a year according to officially announced statistics, although even some of this central bank-announced data may be a little suspect.  China is seen as the principal culprit in this respect.  For years it has withheld data on its gold reserve increases only announcing these as and when it suits its political and economic ambitions.  This culminated in a substantial uprating of its official holdings in June this year, since when it has been reporting month on month increases.  But, given the country’s track record on gold reserve secrecy is there any reason to believe either its officially announced gold holdings, or its supposed month by month purchases?  It has admitted that it has held gold in separate accounts from its foreign reserve holdings and has thus felt no need to report these to the IMF.  It could well be continuing with this manipulation of the true figures, but muddying the waters even further with the new data.  There are many out there who believe that the country’s true gold reserve level is actually a multiple of the latest announced figure.

But if China is misreporting its gold holdings, how many others are too?  Probably most central banks are indeed as transparent as a central bank can be with regard to its gold holdings, but given most report zero change month in month out as can be seen in the table below which shows the gold holdings of the Top 20 as reported in June 2010 and the same countries’/institutions’ holdings as reported this month.  As can be seen only five have reported different gold reserves now than then – and of those five two of the changes are tiny.  Two countries – China and Russia – have both reported very significant additions to reserves, which have been well documented, while the IMF has seen a reduction of 150 tonnes.  But none of the other major holders have reported any significant sales either.

Table:  5 year reported change in gold reserve – Top 20 2010-2015

But, at the beginning of this article we are asking the question of the likely continuity of central bank gold purchases and we certainly see Russian and Chinese gold reserve increases continuing through 2016 and beyond.  Both nations see gold as of great import in cementing their respective positions in the world monetary order – and perhaps to reduce their exposure to the U.S. dollar.  We would anticipate Russia continuing to buy at a rate of around 200 tonnes a year plus and China at an announced rate of around 200 tonnes a year too, but suspect it may be exceeding this.  Kazakhstan has also been a consistent buyer too month in month out at a rate of around 25-30 tonnes a year, and in the Middle East Jordan has been a fairly consistent buyer over the past year or so (See: World Gold Reserve Changes Year To Date). 

But the world of central bank published data is murky to say the least so there could well be others surreptitiously buying, or selling, gold without announcing the fact to the IMF.  We see no reason for these purchases to diminish and we don’t see any significant announced sales on the horizon so the outlook would seem to be for central bank purchases to continue at a reported rate of around 450 tonnes a year plus – close to the level of production from the world’s biggest gold producer – China – and thus a significant element in continuing global gold demand for the foreseeable future..

08 Nov 2015 | Categories: Gold

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