by Peter Schiff, Schiff Gold:
After two months of net global declines in gold holdings, central banks became net buyers again in October.
Gold-buying by central banks has slowed from the record pace we saw in 2018 and 2019, but many countries continue to load up on the yellow metal. In October, central banks added a net 22.8 tons of gold to their reserves, according to the latest data compiled by the World Gold Council.
Buying continued at roughly the same pace as the previous two months, but there were no big sellers in October.
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Uzbekistan was the biggest buyer, adding 8.4 tons to its reserves. The Uzbek central bank has been extremely active in the gold market in recent months. It sold 32 tons of gold in August as the country ramped up gold exports to generate additional income to cope with the COVID-19 pandemic.
Other buyers of gold in October were:
- Turkey – 6.9 tons
- UAE – 6.2 tons
- Qatar – 2 tons
- India – 1.9 tons
- Mexico – 0.1 ton
Mongolia was the only big seller, shrinking its reserves by 2.5 tons.
The Russian central bank also sold a small amount of gold (0.1 ton). Russia was a big buyer earlier in the year. Last spring it announced it would halt gold purchases effective April 1.
Many analysts think Russia and China may well enter back into the market next year.
The People’s Bank of China has not reported any gold purchases in 11 months. It’s not uncommon for China to go silent and then suddenly announce a large increase in reserves. The Chinese government has hinted that it might shed more US Treasuries from its reserve holdings. It would come as no shock if the Chinese replaced US debt with gold.
Q3 2020 was the first quarter of net sales since Q4 2010, primarily due to hefty sales from Uzbekistan and Turkey. As the WGC noted, the drop in global net gold reserves in August and September prompted a renewed focus on central bank gold demand. Some analysts suggested we might be seeing a change in mindset toward gold accumulation. The WGC doesn’t think so.
Gold (+18.6% y-t-d) has continued to outperform many other traditional reserve assets this year, providing central banks with the added firepower needed to stabilize markets and currencies amid unprecedented levels of uncertainty. While it is unsurprising to see some selling, given gold’s role as a safe, liquid reserve asset, the continued accumulation by central banks underscores its importance to central bank portfolios.”
After record years in 2018 and 2019, central bank gold-buying has slowed this year – although it remains strong. Through the first half of 2020, central bank net purchases of gold totaled about 233 tons. That was 39% lower year-on-year. The lower rate of purchases in 2020 was expected given the strength of central bank buying both in 2018 and 2019. The economic chaos caused by the coronavirus pandemic has also impacted the market.
Central bank demand came in at 650.3 tons last year. That was the second-highest level of annual purchases for 50 years, just slightly below the 2018 net purchases of 656.2 tons. According to the WGC, 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second-highest annual total on record.