Central Bank Gold Buying Moderated in August But Remained Positive

After doubling in July, central bank gold buying slowed in August with record high prices but remained in positive territory.

Globally, central banks added a net 8 tons of gold to their reserves in August.

Although it was the lowest net increase in gold reserves since March, World Gold Council senior research lead Marissa Salim pointed out, "Accumulation of gold reserves remains positive, with activity concentrated in emerging market (EM) central banks."

The National Bank of Poland was the biggest gold buyer in August, adding another six tons to its reserves. 

Poland was also the biggest central bank gold buyer in the second quarter. In the last five months, the Polish central bank has accumulated an additional 39 tons of gold. It now holds about 15 percent of its reserves in the yellow metal. 

NBP Governor Adam Glapiński recently indicated the Bank of Poland will continue adding to its reserves with a goal of holding at least 20 percent of the country’s reserves in gold.

"This makes Poland a more credible country, we have a better standing in all ratings, we are a very serious partner, and we will continue to buy gold.”

In 2021, Glapiński announced a plan to expand the country’s gold reserves by 100 tons. The central bank reached that goal in September of '23 and kept buying.

When he announced the initial plan to expand its gold reserves, Glapiński said holding gold was a matter of financial security and stability.

"Gold will retain its value even when someone cuts off the power to the global financial system, destroying traditional assets based on electronic accounting records. Of course, we do not assume that this will happen. But as the saying goes – forewarned is always insured.

“And the central bank is required to be prepared for even the most unfavorable circumstances. That is why we see a special place for gold in our foreign exchange management process."

Glapiński also pointed out that “Gold is free from credit risk and cannot be devalued by any country’s economic policy. Besides, it is extremely durable, virtually indestructible.”

Turkey bought gold for 14 straight months after liquidating 160 tons of gold in the spring of 2023. It is the biggest purchaser of gold year-to-date. The Turkish central bank continued the trend in August, increasing gold reserves by another 3 tons.

Turkey holds about 35 percent of its reserves in gold. 

The Reserve Bank of India bought gold for the eighth straight month, adding 3 tons of metal to its reserves.

The RBI ranks as the second-highest net purchaser of gold on a y-t-d basis, with net purchases totaling 45 tons.

The RBI has been buying gold since 2017. Over that period, it has increased its gold holding by over 260 tons. 

An Indian economist told the Times of India that the push to accumulate gold was based on both political and economic reasons. He said that the "reliability" of the U.S. dollar has "diminished." He noted the "noticeable decline" in the confidence in U.S. dollar assets.

Another economist told the Times, “It makes a lot of sense (to invest in gold), given the increased volatility in the FX market, elevated interest rates in the U.S., and, of course, also as the central banks in each economy would like to diversify the asset classes in which they are parking their reserves.”

India recently transported 100 tons of its gold from the UK back into India.

The Czech National Bank has been quietly increasing its reserves in small increments. In August, it added 2 tons of gold to its holdings. It was the 18th consecutive month of net buying. The Czech central bank has boosted its gold reserves by 33 tons over this period and now owns 45 tons of the yellow metal.

The Central Bank of Kazakhstan was the only notable seller in August, decreasing its gold reserves by 5 tons. The Kazakh central bank holds around 55 percent of its reserves in gold. It is not uncommon for banks that buy from domestic production – such as Uzbekistan and Kazakhstan – to switch between buying and selling.

Salim said the price of gold isn't typically a top strategic driver of central bank gold buying, the rapidly spiking price in August may have influenced the deceleration in buying. 

"However, it is worth noting that sales have not increased, which may signal a likely wait-and-see approach rather than a change in trend. Specially, since all other key drivers of central bank decision-making, such as the need for effective diversifiers and gold’s performance in time of risk remain in place."

According to the most recent World Gold Council survey released in June, 29 percent of central banks plan to add more gold to their reserves in the next 12 months. The WGC said it was the highest level since the survey began in 2018.

Only 3 percent said they had plans to decrease gold reserves.

Earlier this year, the World Gold Council said the continuation of gold buying supports its expectation that "2024 will be another solid year of central bank gold demand."

"Last year, central banks placed great emphasis on gold’s value in crisis response, diversification attributes, and store-of-value credentials. A few months into 2024, the world seems no less uncertain, meaning those reasons for owning gold are as relevant as ever."

Last year, central bank gold buying fell just 45 tons short of 2022’s multi-decade record.

According to the World Gold Council, central banks net gold purchases totaled 1,037 tons in 2023. It was the second straight year central banks added more than 1,000 tons to their total reserves.

Central bank gold buying in 2023 built on the prior record year. Total central bank gold buying in 2022 came in at 1,136 tons. It was the highest level of net purchases on record dating back to 1950, including since the suspension of dollar convertibility into gold in 1971.

China was the biggest buyer in 2023.

Analysts at ANZ Bank recently said they expect central bank gold buying to remain hot for at least the next six years.

According to these analysts, "Depleted trust in the U.S. fixed-income assets and the rise of non-reserve currencies are other themes that could support central bank gold buying."

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