During a tumultuous Q1, a quarter which saw significant market volatility and an unprecedented global financial stimulus, central banks bought 145t, down 8% y-o-y. This is, however, 9% above the five-year quarterly average of 132.9t.
While central bankers around the globe were focused on the measures needed to contain the economic impact of COVID-19, the need for robust, liquid and diversified international reserves was apparent. And positive net purchases of gold confirm that it remains an important component of those reserves. But the number of gold buyers was lower: six central banks increased their gold reserves – by at least a tonne – in Q1, compared to ten in Q1 2019.
Recent buyers continued to add gold. The most significant purchases during the quarter – those of at least one tonne – were from banks who have been consistent recent buyers.1 Turkey added 72.7t in Q1, boosting gold reserves to 485.2t, 29% of its total reserves. It was by far the largest buyer during the quarter, having also been the leading buyer in 2019, accounting for 50% of the Q1 global total.
The biggest story from Q1 came right at the end of the quarter. The Central Bank of Russia, the largest gold buyer since the end of 2005 – the start of its 14-year buying streak – announced that it would suspend its gold buying programme from 1 April. The bank gave no reason for the move but has previously signalled that it may scale back its buying programme. Following four consecutive years of 200t+ net purchases, buying slowed to 158.1t in 2019 after the central bank announced it would purchase domestic production – its main source of gold – at a discount. During Q1, the bank added 28t to take total gold reserves to 2,299.2t. It has recently been drawing down reserves to protect its currency in the face of lower oil prices and the economic impact of the coronavirus outbreak, pushing gold’s share of total reserves to 21%. Going forward, we expect the absence of regular Russian gold buying to undoubtedly have a significant impact on the level of global total net purchases. The bank has not ruled out the prospect of gold purchases in the future, however, saying that “Further decisions on gold purchases will depend on how the situation develops”. 2
Other central banks, namely ,UAE (7t), India (6.8t), Kazakhstan (2.8t) and Uzbekistan (2.2t) increased their official gold reserves increased by at least a tonne in Q1.
Net sales remain scarce. While buying levels in Q1 were lower than we have seen over the last two years, sales continued to be small in scale. The Central Bank of Sri Lanka was the largest seller in Q1, with reserves declining by 12.9t to 6.7t. The bank’s decision to sell came after an internal evaluation of its asset allocation.3 Germany (2.3t) and Tajikistan (2.1t) were the other notable sellers in Q1, with the former sporadically using gold reserves for its longstanding coin-minting programme.