Central Bank Gold Buying Continued to Sizzle in August

Central bank gold buying continues to sizzle.

Central banks globally added a net 77 tons to their reserves in August, according to the latest data compiled by the World Gold Council.

It was the third straight month of net purchases. Over the last three months, net gold buying by central banks totaled 219 tons.

In March, April and May, central banks reported net gold sales, primarily due to Turkey selling 160 tons of gold over that three-month period. According to the World Gold Council, this was a specific response to local market dynamics and didn’t likely reflect a change in the Turkish central bank’s long-term gold strategy.

Turkey returned to buying gold in June and added another 14.7 tons in August, joining China, Poland and Uzbekistan as the biggest buyers for the month.

According to the World Gold Council, the Turkish government reinstated gold import quotas in early August. There was some speculation that domestic shortages could lead to central bank gold sales to meet demand, but this clearly wasn’t the case.

The People’s Bank of China ranked as the largest buyer in August, adding 28.9 tons of gold to its holdings. It was the 10th consecutive month of buying for the Chinese central bank. China is the largest gold buyer year-to-date, having increased its official reserves by 166 tons since the beginning of the year and 217 tons since it resumed official purchases last November. The People’s Bank of China now officially holds 2,165 tons of gold, making up 4% of its total reserves.

China has a history of adding to reserves and then going silent.

The People’s Bank of China accumulated 1,448 tons of gold between 2002 and 2019, and then reported nothing for more than two years before resuming reporting last fall.

Many speculate that the Chinese continued to add gold to its holdings off the books during those silent years.

In fact, there has always been speculation that China holds far more gold than it officially reveals. As Jim Rickards pointed out on Mises Daily back in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE).

Last year, there were large unreported increases in central bank gold holdings.  Central banks that often fail to report purchases include China and Russia. Many analysts believe China is the mystery buyer stockpiling gold to minimize exposure to the dollar.

The National Bank of Poland added 14.9 tons of gold to its reserves. That brings its year-to-date total to 88 tons.

In the fall of 2021, Bank of Poland President Adam Glapiński said the central bank planned to add 100 tons of gold to its reserves in 2022. It’s unclear why the bank didn’t follow through, but it is now just 12 tons short of that stated goal.

When he announced the 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.”

India has been buying relatively small amounts of gold for the last four months. The Reserve Bank of India increased its holdings by 1.9 tons in August.

The RBI added 7 tons in Q1. Since resuming buying in late 2017, the Reserve Bank of India has purchased over 200 tons of gold. In August 2020, there were reports that the RBI was considering significantly raising its gold reserves.

Russia reported a 3.1-ton increase in its gold reserves. This brings the country’s gold holdings back to where they were at the beginning of the year. Russia was a big buyer prior to its invasion of Ukraine. Last month, there were reports that Russia would recommence the buying of foreign currency and gold in the coming months, but there were few details about the plan.

Uzbekistan has cycled back to buying with an 8.7-ton gold purchase.  It is not uncommon for banks that buy from domestic production – such as Uzbekistan and Kazakhstan – to switch between buying and selling.

Kazakhstan reported a small half-ton purchases in August.

Three other central banks bought gold in August.

• The Czech Republic – 1.7 tons
• Kyrgyz Republic – 0.7 tons
• Singapore – 1.6 tons

There were no significant sales reported in August.

Bloomberg reported that Bolivia “monetized” 17 tons of its gold reserves between May and August following the enactment of a law authorizing the central bank to utilize its gold reserves. But according to the World Gold Council, it’s unclear what is meant by “monetize.” Currently, data Central Bank of Bolivia gold reserves is not available after April.

The WGC characterized central bank gold buying as “healthy.”

Even accounting for the net sales earlier in the year, the pace of buying so far this year suggests that we are on course for another strong annual total.”

Even with Turkey’s big sales earlier this year, net central bank gold purchases totaled 387 tons through the first half of the year. That was the highest first-half total since the organization started compiling quarterly data in 2000. This continued the trend of increasing gold reserves we saw last 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. It was the 13th straight year of net central bank gold purchases.

According to the 2023 Central Bank Gold Reserve Survey recently released by the World Gold Council, 24% of central banks plan to add more gold to their reserves in the next 12 months. Seventy-one percent of central banks surveyed believe the overall level of global reserves will increase in the next 12 months. That was a 10-point increase over last year.

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