Central Bank Gold Buying Gathers Steam
The comments below are an edited and abridged synopsis of an article by Shaokai Fan
Central banks have been buying gold during the first four months of 2021; the official sector has added 150-200 tonnes of gold during that time. A significant portion of this is from the central banks of Hungary and Thailand, which added 63 tonnes in March and 43.5 tonnes in April, respectively. These two purchases are the second- and third-largest monthly central bank gold purchases in recent history, eclipsed only by Poland’s 100-tonne purchase in June 2019.
Thailand’s gold purchases continued in May as well. The Bank of Thailand publishes weekly reserve position data on gold, although reported in US dollar terms, not tonnage. Between April 30 and May 28, the value of Thailand’s gold reserves grew from $11.2 billion to $14.9 billion, an increase of $3.7 billion, for a 40-50 tonne increase. An update from the IMF will be required to see the exact change in Thailand’s gold reserves.
Zambia has also started to accumulate gold, albeit on a smaller scale. Since February 2021, it has added 2,100 ounces per month to its reserves. Zambia has reported its May gold holdings to the IMF, which now total 8,400 ounces (0.26 tonnes). These purchases are likely the result of the central bank’s decision to build its gold reserves from domestic production. Zambia joins the central banks of Mongolia, the Philippines, and several other countries in sourcing gold reserves from domestic mine supply.
Hungary issued a press release citing new risks arising from Covid-19 as playing a role in its decision to buy. Bank of Zambia’s governor said that “during periods of market stress—when assets would be losing value—gold would be adding value, thereby shielding the whole portfolio from large losses.” A 2021 Central Bank Gold Reserves survey found that gold’s performance during crisis periods is now the most relevant factor for central banks to hold gold, echoing the sentiments above. As uncertainty over the post-pandemic recovery hangs over global markets, it will continue to drive central bank investment decisions over the coming year.