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Central bank gold demand remains healthy but shows signs of slowing

Thu Jan 09 2020


The World Gold Council’s (WGC’s) latest statistics show that monthly increases of 1 t or greater, in gold reserves, have begun to ease over the past three months.


The council on Thursday released its regular statistical update on gold reserves in the official sector, which highlighted that Turkey, Russia, Kazakhstan and Mongolia had significantly increased their central bank gold holdings in November last year, adding 17 t, 9.4 t, 4.6 t and 2 t of gold, respectively.


According to the WGC’s world official gold holdings, as of January 2020, Turkey now holds 415 t of gold, Russia 2 261 t, Kazakhstan 382 t and Mongolia 23 t of gold.


The US currently tops the gold holdings chart at 8 133 t of gold, with Germany second at 3 366 t.

The UK holds 310 t of gold and South Africa 125 t of gold, as of this month.


The council further mentioned that, in October 2019, reported net purchases totaled 41.8 t, but lamented that this was 16% lower than in September (49.6 t), which itself was 16% lower than in August (59 t).


Russia and Turkey were, according to the WGC, the biggest buyers in October, while Chinese gold reserves remained flat during the month. However, this loss in demand was offset by the reported increase in Serbian gold reserves.


As of January 2020, China holds 1 948 t of gold.


The only other notable purchases during October came from Uzbekistan, the United Arab Emirates and Mongolia.


On the gross sales side, the WGC said Germany and Kazakhstan were the only two countries which have, so far, reported a fractional decrease in gold reserves in October.


In a report released last month, on December 31, 2019, the council noted that long-term drivers of gold from key categories include economic expansion, market risk, opportunity cost and momentum.


According to the council, gold prices are determined by the interaction of drivers from four key categories, namely wealth and economic expansion; market risk and uncertainty; opportunity cost; and momentum and positioning.


The first two play a particularly important role in gold’s long-term performance and form the basis for strategic reasons to buy and invest in gold, the council emphasized, adding that there is a positive link between gold prices and economic growth via demand for gold in the form of jewellery, technology and long-term savings.


“This is particularly true in developing economies where gold is often used as a luxury item and a means to preserve wealth,” the council stated.


Market risk and uncertainty are equally relevant to gold’s long-term performance, the council further mentioned, highlighting that many investors view gold as the ultimate safe haven, considering that it is effective in hedging currency depreciation, high inflation and other systemic risks.


In addition, other macroeconomic variables such as interest rates may increase or decrease the relative cost of holding gold. And price momentum and similar trending variables can further enhance or depress the direction of gold’s performance.