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World Gold Council: Central banks resume gold purchases, net reserves increase by 22.8 tons

03 December 2020


According to the latest data released by the World Gold Council, after two consecutive months of net selling, central banks of various countries resumed gold purchases in October, resulting in a net increase of 22.8 tons of global official gold reserves. The buying level of gold remained the same as the previous two months, but the selling level was greatly reduced.At the national level, the total purchase volume in October was 25 tons, mainly driven by the central banks of 5 countries, including Uzbekistan (8 tons), Turkey (7 tons), the UAE (6 tons), Qatar (2 tons) and India (2 tons). In contrast, the total global gold sales are less than 3 tons, of which Mongolia is the main seller.According to the latest data from the World Gold Council, as of December 3, the United States was still the world's number one country in gold reserves, with 8133.5 tons of gold reserves, accounting for 79.3% of its total foreign exchange reserves. The second largest German gold reserve is 3362.4 tons, accounting for 76.5% of its total domestic foreign exchange reserves. Mainland China ranks seventh, with a gold reserve value of 1948.3 tons, accounting for only 3.6% of foreign exchange reserves.


It is worth noting that although China's gold reserves are at the forefront of the world, their proportion is far below the average level of the world. Among the top ten countries with gold reserves, the ratio of China's gold reserves to foreign exchange reserves is the lowest, and it can even be said that the proportion is ranked at the end of the top 100 countries. Even if Hungary ranks 60th, although its gold reserves are only 31.5 tons, accounting for 5.4% of total foreign exchange reserves, Nigeria, which has about one-tenth of China's gold reserves, accounts for 3.5% of the total.


"The reason why my country's gold reserves account for a small part of total foreign exchange reserves is mainly due to the large total domestic foreign exchange reserves, which directly lowers this ratio. For euro zone countries such as the United States, Germany, France, and Italy, The high proportion of gold reserves is mainly due to the fact that the US dollar and the euro are the world's major foreign exchange reserves, and the demand for other foreign exchange reserves is not high," a gold futures analyst told reporters.


Previously, the "Gold Demand Trend Report" (hereinafter referred to as the report) released by the World Gold Council in November stated that global central banks have rarely become net gold sellers since 2010. From the beginning of 2020 to the end of the third quarter, total global gold demand was 2972.1 tons, a year-on-year decrease of 10%. Under the continuing impact of the epidemic, global gold demand in the third quarter was 892 tons, a year-on-year decrease of 19%.But the report also stated that despite the decline in overall demand for gold, global gold investment demand in the third quarter rose sharply, up 21% year-on-year.The report stated that the global central bank’s net sales of gold in the third quarter were 12.1 tons, compared with the purchase of 141.9 tons in the same period last year. The central banks of Russia and China, which have always had sufficient gold reserves, have also weakened demand for gold purchases. In addition, Bloomberg preliminary statistics show that gold ETFs have experienced the largest outflow of funds in more than a month.According to data from the official website of the People's Bank of China, as of the end of October 2020, my country's gold reserves have been maintained at 62.64 million ounces this year, and the latest value has not yet been announced.


In this regard, Xie Yaxuan, chief macro analyst at China Merchants Securities (23.570, -0.14, -0.59%), said in a previous interview with a reporter from 21st Century Business Herald that some central banks’ gold sales were mainly due to the pandemic, which led to their fiscal austerity, thus selling gold. To fill the fiscal gap.


“Unlike investors and other profit-making institutions, the central bank’s investment decisions will more consider long-term mean reversion,” Xie Yaxuan said. “Gold has indeed achieved a considerable increase in the past ten years. Under this background, major central banks have begun to sell. To sell gold means that the central bank believes that the price of gold has significantly exceeded the expected median price, and thus will move toward the median."In Xie Yaxuan’s view, in the entire global gold market, the central bank is not an active investor, so its impact on the entire international gold market is not very large. The price of gold is currently at the highest level in history. The increase was not large.


Following the Democratic Party’s first concession to lower the stimulus quota and the proposed negotiation based on the amount of US$ 908 billion, the two parties are expected to reach a new round of this fiscal stimulus plan this week. The attractiveness of gold as a tool to hedge against possible inflation has increased. This rose slightly. It touched $1,840 per ounce on December 3. Yesterday, gold closed at US$1830.71 per ounce, with the highest reaching US$1832.52 per ounce, and the lowest reaching US$1806.80 per ounce, with a volatility of US$26 throughout the day.


It is worth mentioning that, unlike the major central banks in the world that resume the purchase of traditional safe assets of gold, global investment institutions are starting to “throw out a small amount of gold and diversify assets” operations.JP Morgan Chase analysts said that fund investment institutions such as the family financial office are selling gold exchange-traded fund (ETF) positions and buying bitcoin. Since November 6, gold ETF holdings have fallen by 93 tons, amounting to about US$5 billion. The Grayscale Bitcoin Trust, which institutional investors pay attention to, has doubled its asset size (denominated in US dollars) since the beginning of August.