Gold

Central banks do not plan to decrease gold reserves

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Investment demand for gold remained high in 2020, thanks to purchases undertaken by central banks which continue to be positive on the yellow metal. Around 21 per cent of the central banks around the world intend to increase their gold reserves over the next 12 months, according to the 2021 Central Bank Gold Reserves (CBGR) survey jointly undertaken by the World Gold Council (WGC) and YouGov.

The survey also noted that gold’s performance during periods of crisis has risen to become the top reason for central banks to hold the commodity. “These results come amid ongoing uncertainty stemming from the Covid-19 pandemic, a situation which has added significant complexity to central bank reserve management,” the report said.

“At the same time, ongoing concerns about global market volatility and the path of the post-pandemic economic recovery continue to inform central banks’ views of gold. These same factors may also be clouding respondents’ opinions on the overall direction of central bank gold holdings despite having more certainty on their own plans for gold,” it added.

Gold buying by central banks over the world was strong in the first half of 2020, but was modest in the second half, WGC data showed. Of note, some central banks also sold gold last year, including the Bank of Russia, which had announced a halt to its regular gold purchases.

largest monthly central bank gold purchases
(Source: World Gold Council)

Buying gold on the international OTC market continues to be the most common form of central bank purchase, the survey revealed. Good Delivery bars also continue to be the mainstay of central bank gold purchases. Kilo bars and doré comprise far less popular amongst central banks, although their proportion has risen slightly compared to previous years.

Looking ahead, the WGC report said that central banks will continue to be net buyers of the yellow metal, although total purchase volumes may not be as large as in the previous decade.

Central banks net purchases totalled a healthy 56.7t during May, down 11% m-o-m. For a second consecutive month, Thailand was the biggest buyer, adding a further 46.7t in May and accounting for 82% of total net purchases for the month. Turkey also increased gold reserves by 8.6t during the month, bringing official sector reserves to 415t. Brazil (11.9t), Kazakhstan (5.3t), Poland (1.9t), and India (0.9t) were the other notable buyers during the month. There was also a m-o-m pick-up in sales during May, with gross sales totalling 18.9t, the highest level since January (22.5t).

The continuation of expansive monetary and fiscal policies, now combined with rising inflation
could keep the precious commodity in favour among investors because it is often seen as a hedge against inflation.