One of World’s Top Gold-Buying Central Banks Is Far from Sated

The comments below are an edited and abridged synopsis of an article by Nariman Gizitdinov and Maria Kolesnikova

The world’s second-biggest buyer of gold among central banks last quarter believes there’s hardly such a thing as too much bullion. Uzbekistan has brought the share of gold in its $32-billion reserve fund to almost two-thirds.

One of World’s Top Gold-Buying Central Banks Is Far from Sated - BullionBuzz - Nick's Top Six
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The proportion is now among the highest in developing economies, even as total Uzbek reserves have grown by about a quarter since the central bank broached the idea of diversifying away from bullion more than three years ago.

With gold prices surging in 2020 during the coronavirus pandemic, the central bank changed course.

Uzbekistan stood out this year as central banks scooped up a record of almost 400 tons of gold last quarter, more than quadruple the amount of a year earlier. Its purchases of 26 tons were second only to Turkey’s.

Gold’s safe-haven appeal has grown after sanctions imposed this year on Russia, Uzbekistan’s second-biggest trading partner, over its invasion of Ukraine. While penalties levied by the US and its allies cut off Russia’s access to about $300 billion in reserves held in foreign currencies such as dollars and euros, bullion remained largely beyond their reach.

Gold rose above $2,000 in March as inflation fueled demand for the metal as a hedge. Since then, the US dollar has rallied and Treasuries have sold off as the Fed hiked interest rates. Meanwhile, gold declined for seven straight months in the longest losing streak since at least the late 1960s.

As prices peaked in the first quarter, the Uzbek central bank sold 50 tons, which was partly offset by domestic purchases. It hasn’t offered bullion for sale since then, in anticipation that the outlook will improve.

Uzbekistan ranks 11th among top gold producers globally, and its central bank buys the entire local output of more than 100 tons a year, paying in local currency and selling dollars to offset the effect of the purchases. It has acquired 86.5 tons this year, raising its holdings by 399 tons.

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