Central banks had a slow start to 2017; net purchases dropped to 76.3t in Q1. This is a 27% decline from the 104.1t seen in Q1 2016 and almost a third lower than the 108.5t in Q4 of that year. Looking towards the longer-term trend, demand for gold among central banks has broadly slowed since reaching a peak of 174.9t in mid-2014. This lower rate of purchases is likely to continue throughout 2017.
There were few active buyers in Q1. Russia returned to the market after a brief hiatus in December: gold reserves increased by 64.9t to 1,680.1t, taking gold as a percentage of the country’s reserves to 17%, its highest level since Q1 2000. The National Bank of Kazakhstan added 9.6t to gold reserves in Q1, extending its unbroken run of net purchases to 54 consecutive months.
By contrast, China – one of the largest purchasers in recent years – has left gold reserves untouched since October 2016. This development may be related to shifts in foreign exchange reserves. Although these rose in February for the first time in 7 months, Chinese FX reserves have been under pressure for some time, having dropped from US$3.2 trillion in January 2016 to US$3 trillion in January 2017. As a percentage of total reserves, however, China’s gold remains comfortably above 2%, reaching as much as 2.4% as the gold price rose during Q1, (download our statistics on current and historical global gold reserve holdings). This is its highest share since the early 2000s, and may partly explain the lack of gold purchases in recent months.
Net sales remain at trivial levels. Jordan and Qatar both sold over 3t each in Q1. Czech Republic, Mexico, Mongolia and Mozambique also reduced their gold holdings by modest amounts. Additionally, some central banks entered swap agreements in recent months: Argentina conducted swaps of gold totalling 6.9t as part of a strategy to enhance the yield on their gold holdings; and Hungary lent 3.1t in a swap transaction in December.
Media reports suggest Turkey’s central bank’s gold policy may be evolving. In April, Reuters reported that the Turkish central bank is to be given first option to buy locally mined gold. The central bank will be able to buy gold using lira, thus preserving its FX reserves.