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Gold is not a vegetable, the central bank takes the area

14 July 2021

After one month of the biggest price decline in the past four years, the gold market seems to have taken a sigh of relief and once again touched $1,800 per ounce. This demonstrates the tenacity of gold and at the same time reflects the global central bank's re-purchasing of gold, which is a huge support for the gold market.

The Russian Ministry of Finance said in early July that it would purchase 13.5 billion rubles (about 184 million US dollars) worth of foreign exchange reserves every day from July 7 to August 5, an increase from the previous month.The Russian Ministry of Finance stated that next month its regular foreign exchange and gold purchases in the market will reach 296 billion rubles (4.04 billion US dollars). Although it did not provide details of its gold purchase plan, this is the first time in its history that precious metals have been mentioned in its monthly release.The Central Bank of Russia has suspended gold purchasing and storage since the second quarter of last year. This is the first time 15 months later that it will open the gold window. The Central Bank of Russia has been the king of the central bank's gold purchases for many years. Since this century, its gold reserves have increased by 440%, and it is now the fifth largest gold reserve country in the world.

Under the threat of US economic sanctions, the Central Bank of Russia has repeatedly become a major buyer of gold in order to diversify the financial risks it faces. In Russia's international reserves, gold accounts for more than the U.S. dollar. The Central Bank of Russia lowered the share of the Euro in its international reserves to 29.2%, the U.S. dollar to 21.2%, and the British pound 6.3% last year, increasing the share of the renminbi (12.8%) and gold (23.3%). On the whole, although the proportion of Russian gold in foreign exchange is better than that of China and India, the proportion of 23.3% is still far behind some Eurozone countries, so there is still room for holdings. Russia opened the window again, shining new light on gold.

Last year, central banks' gold reserves increased by 273 tons. This is the 11th consecutive year of net purchases by central banks, but the increase has fallen to the lowest level since 2010. Citigroup believes that under bullish conditions, as the global economy rebounds, central bank purchases may rebound rapidly. Citibank predicts that the purchase volume in 2021 will climb to 500 tons, and next year it will climb to 540 tons. According to data from the World Gold Council, although this is lower than the peak of over 600 tons in 2018 and 2019, it has increased significantly over last year and is also close to the level of 2015.

In recent months, higher bond yields have made gold less attractive to investors. But in the eyes of the central bank, the status of gold is still irreplaceable. When more and more central banks have rekindled interest in gold, the performance of gold prices will have a bottom line. Especially half a century ago, at the juncture of the global economic transformation, US President Nixon made some difficult decisions, depriving gold of its “currency status”. But gold has never gone far, and it is still the bottom-of-the-box property of central banks. From inflationary pressures to trade divergence, it may be time to make a decision to return to tradition. It’s just that this decision is no longer made by the President of the United States alone. Many central banks have already given their own answers.

Source: https://finance.sina.com.cn/money/nmetal/hjzx/2021-07-14/doc-ikqciyzk5436491.shtml