Central Banks' Gold Buying and Repatriation Spree / Commodities / Gold & Silver 2019

Central banks’ purchases and repatriations of goldhave caught our attention once again. In October, Serbia’s central bank bought 9 tons of gold, following in thefootsteps of many other central banks that have been adding to their goldreserves recently, including Russia, Hungary, and Poland.

Nine tons may seem to be a modest purchase, but thetransaction was worth $438 million at $1,503 an ounce. And it has raisedSerbia’s gold reserves to 30.4 tons, constituting about 10 percent of thecountry’s total reserves. Importantly, the National Bank of Serbia could carryon with its purchases, as it got clear message from the Serbian President,Aleksandar Vucic to continue boosting gold reserves in order to be betterprepared for the economiccrisis: “I think we’ll continue doing that because of what we see in whichdirection the crisis in the world is moving,” Vucic told the press.

This purchase should be seen from broader perspective. Central banks added 156 tons of gold to their reserves in Q3, according to the World GoldCouncil. Althoughit was significantly lower than the record levels of Q3 2018, central bankbuying remained healthy. Actually, central banks are on track to be net goldbuyers for 10 consecutive years, as the chart below shows. And the trend islikely to continue in the coming years due to heightened global tensions,slowdown in economic growth, negative bond yields, and trade wars.

Chart 1: Gold reserves (intons) in Poland (green line, left axis) and in the world (red line, right axis)from Q1 2000 to Q2 2019

Moreover, in September, Germany’scentral bank gold holdings have risen for the first time this century. Given that Bundesbank is still quite influential, its reversal may encourageother central banks to buy gold more decisively. September’s outright purchaseof the precious metal comes two years after Bundesbank repatriated 583 tons ofgold worth about $31 billion.

When we discuss repatriationof gold, we have to mention Poland, which has rapidly boosted its bullionreserves over the past two years by 125 tons to 228.6 tons, as one can see inthe chart above. And yesterday, the country has brought back around 100 tonsof gold from the Bank of England’s vaults in London. It means that aroundhalf of Poland’s holdings in the UK were transferred back to the National Bankof Poland’s vault in Warsaw. Adam Glapinski, the central banks’ governor,commented the move as follows:

We have completed the procedure of bringing ourgold to the country. In this connection, I can say that we brought Poles’ goldhome (...) We have as much gold in reserves as other industrialized andcivilized countries (…) Our reserves are at an appropriate level, they aresufficiently high and safe, which does not mean that they cannot grow further.I think that in a few years the NBP may increase its reserves again. (…) Thevalue of the imported metal is 18 billion zlotys, said the NBP president. If wesold gold recently bought now at current prices, we would have multi-billionprofit (…) The gold symbolizes thestrength of the country.

Don’t you feel confused? Central banks abandoned the gold standard, anddeclared gold to be barbarous relic not suitable for modern times. We are toldthat fiat money is superiorto precious metals. We are told that we should believe in the wisdom of thecentral bankers and their scientific management of the monetarypolicy. If so, why the heck the central banks buy the barbaric gold? To find outthe answer, I encourage you to read the full version of today’s Fundamental Gold Report, which in-depth analyzes thereasons behind the central banks’ purchases of gold and its impact on theprecious metals market. In order to receive the following (posted bi-weekly)analyses and stay informed on all things fundamentally golden, please subscribe now on our website.

Arkadiusz Sieron
Sunshine Profits‘ MarketOverview Editor

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