What Central Banks Bought Gold In 2018?
(Kitco News) - Central banks are not onlypurchasing more gold than in recent years, but a number of new buyers haveentered the fray.
This includes Poland and Hungary,the first European Union nations to buy gold since the start of the century,said Junlu Liang, senior analyst with the consultancy Metals Focus. In the caseof Hungary, the central bank not only bought its first gold in 32 years, butalso increased total holdings by 10-fold.
“Central-bankbuying has accelerated sharply,” said Natalie Dempster, managing directorfor central banks and public policy with the World Gold Council. “It hasalso become geographically more diverse, with several new countries adding goldfor the first time in decades.”
In fact, she added,16 different central banks have increased their gold reserves since the startof 2017. In its quarterly report on demand trends released this week, the WorldGold Council reported that central banks collectively made net purchases of148.4 tonnes in the third quarter, the most since 2015.
Metals Focus islooking for global central-bank net gold purchases of up to 450 tonnes thisyear, which would top 390 and 375 the last two years, Liang said. If so, thiswould reverse a four-year gradual decline in net bullion buying since 2014,with last year’s total down by 42% from the multi-decade high of 646 tonnes in2013, the consultancy said.
Differentorganizations compile the data slightly differently. For instance, some usefigures as they are released monthly by the International Monetary Fund. Thistends to have a two-month lag, thus does not include some of the recentpurchases, such as those from Hungary. Other firms add up the figures even whenthey are announced ahead of the IMF data.
From the start ofthe year through the end of August, central banks added 260 tonnes, saidDempster, who compiles data for the World Gold Council. This excludes the datafrom Hungary. Still, this is a 50% increase from the same period last year.
CPM Group’s datashows 11.4 million ounces of net purchases have already occurred, therebyalready exceeding the 10.9 million from all of last year, said Rohit Savant, director of research.
Bloomberg reportedthat central banks now collectively hold more than 33,000 tonnes of the metal.The news organization said this is roughly one-fifth of all the gold evermined.
Who Are TheCentral-Bank Buyers?
From 2016 to thefirst half of 2018, most purchases were by a handful of central banks,including Russia, Kazakhstan and Turkey, Liang reported. The People’s Bank ofChina, meanwhile, has been conspicuous by its absence since 2016.
“What has beeninteresting over the summer is we have seen new countries start to buy gold,” Liangcontinued.
Poland became thefirst, adding nearly 14 tonnes in the third quarter, Liang said. Then came thenews that Hungary increased its gold reserves by 10 times. The Hungariancentral bank announced this increase this month, and the data has not yet shownup in the monthly statistics from the IMF.
The central bankissued a statement saying that it hiked its gold reserves from 3.1 tonnes to31.5 tonnes, all in October, its first purchases since 1986. Further, metal wastransferred to Hungary. The ratio of gold in its reserves jumped from less than1% to 4.4%, which the bank said is the average of non-euro area Central andEastern European countries.
“Holding preciousmetal within the country is consistent with international trends, enhances financialstability and may strengthen market confidence in the Hungarian economy,” thebank said in its statement. “Preserving its historical role, gold continues tobe one of the safest assets in the world, which enhances stability andconfidence even under normal market circumstances.”
Meanwhile, Indiaalso has been slowly increasing its reserves, adding 21.8 tonnes so far thisyear, with more than half in the third quarter, Liang said. This was thecountry’s first major increase since purchasing 200 tonnes off market from theInternational Monetary Fund in 2009.
“Part of thisincrease was related to the gold monetization program. But part could also be areflection of portfolio diversification,” Liang explained.
Meanwhile,Bloomberg has reported that Mongolia bought 12 tonnes this year, although Liangadded that the country itself has not confirmed this.
Meanwhile, Liangsaid, Russia has continued to buy gold along the lines of 50 to 60 tonnes perquarter, with 159.8 tonnes for the year to date. The country has slightlybought above 200 tonnes annually over the last three years, she said.Kazakhstan has been buying 30 to 40 tonnes a year, and the consultancy expectsthis to continue, with the central bank already purchasing 34.1 tonnes.
Turkey has bought 54.7tonnes so far in 2018, including 18 in the third quarter, Liang added.
“Their currency isobviously in trouble. They have been having a lot of economic problems,” Savantsaid.
Why HasCentral-Bank Gold Buying Picked Up?
Analysts list anumber of reasons why central banks have been buying gold, from geopoliticalconcerns to diversification of reserves.
Further, many ofthese purchases occurred at a time when gold prices were relatively low,especially compared to early this decade when they briefly topped $1,900 anounce, Savant explained. Spot gold dropped to a three-month low of $1,160.75 inmid-August after trading as high as $1,364 in mid-April.
Further, Savant continued,many central banks have much of their reserves in the U.S. dollar, but thegreenback may not remain as strong as it has been. When the dollar falls, goldtends to rise, and vice-versa. “They just keep looking for ways to diversify,”Savant said.
In the case ofRussia, officials simply want to move away from the U.S. dollar, Dempsterexplained.
“Russia has boughta huge amount of gold over the past decade,” she said, adding that this nowstands around 2,000 tonnes, a 10-fold fold increase over the past decade. “Atthe same time, Russia has recently sold the majority of its holdings of U.S.Treasuries, and the Bank of Russia said it will continue the policy ofde-dollarization.
“In othercountries, it’s probably re-balancing related, driven by a combination ofrising foreign-exchange reserves and a lower gold price, meaningthe share of gold in total reserves has fallen and they are re-balancing backto their preferred strategic level. A lot of central banks do manage their goldportfolios in this way.”
The desire fordiversification may also be driven by a deteriorating view of other reserveassets, Dempster continued. Gold mainly competes with bonds fromadvanced-economy countries in a reserve portfolio, but budget woes in the U.S.and Europe and “Brexit” in the U.K. have increased the long-term risksassociated with these currencies.
“It is also worthnoting that the new buying has been concentrated in countries thathave especially low allocations to gold,” she added.
A shift in othercurrency allocations also may be driving some of the demand. Some nations arenow holding China’s currency in their reserves, reflective of growing tradelinks with China. Allocations into the Chinese currency can be expected to growover time, giving rise to a shift to a more multi-currency system rather thanone principally in the U.S. dollar, Dempster said.
“But any such shiftcould be de-stabilizing, and some central banks might be buying gold as a hedgein anticipation,” she added.
Purchases ExpectedTo Continue
Liang looks for theusual buyers -- Russia, Kazakhstan and Turkey - to continue purchasing gold.
“Hungary is morelikely to be a one-off [buyer] given that they have already increased theirholdings by 10-fold,” she said. “It will be interesting to see whether Polandwill continue, giving that they have been made steady purchases over the lastthree months.”
Dempster seescentral banks collectively remaining net buyers.
“I think we may beseeing the beginning of a structural change here and we could see significantlyhigher purchases from central banks going forward, coupled with a furtherbroadening in demand,” she said.
By Allen SykoraFor Kitco News
Follow @AllenSykora
asykora@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.  |