Following a relatively inconsistent H2 2020, central banks started 2021 with healthy net purchases. Globally, central banks bought 95.5t on a net basis during the quarter, 23% lower y-o-y. However, this is 20% higher q-o-q and in line with quarterly net purchases last seen between 2016 and 2017.
Net sales in January were outweighed by net purchases in both February and March. As we have discussed previously, mid-2020 saw consistent net purchasing by central banks give way to swings between net purchases and net sales on a monthly basis. Large, sporadic sales have tipped the balance in some months, with the drivers behind these sales ranging from economic hardship to higher local gold demand and coin-minting.1
In Q1, sizeable purchases and sales from a small group of emerging market banks continued to drive overall central bank demand.2
Four central banks accounted for much of the buying during the quarter. India, a regular buyer of gold since December 2017, added another 18.7t in Q1, taking overall gold reserves to 695.3t (7% of total reserves). This is comfortably above India’s quarterly average level of net purchases (9.9t) since the start of 2018.3 Kazakhstan, another regular buyer, added 8t in Q1, while Uzbekistan bought 23.3t.
But the largest purchase during the quarter came from Hungary. The central bank recently announced it had purchased 63t in March, tripling its gold reserves from 31.5t to 94.5t, which now accounts for 14% of total reserves. This is Hungary’s first purchase since October 2018 (28.4t), and the fourth largest single monthly purchase since January 2009 globally.4 In its statement announcing the purchase, the bank explained that: “Managing new risks arising from the coronavirus pandemic also played a key role in the decision. The appearance of global spikes in government debts or inflation concerns further increase the importance of gold in national strategy as a safe-haven asset and as a store of value.”5
Hungary was not the only country from the region to publicise its gold reserves. During the quarter Adam Glapiński, President of the National Bank of Poland, announced the intention to bolster gold reserves by at least 100t over the next few years and stated that gold’s share of total reserves should rise to 20%.6 Poland increased its gold reserves by 25.7t in 2018 and a further 100t in 2019, taking overall gold reserves to 228.7t (8% of total reserves). These previous purchases were strategic in nature, aimed at further safeguarding the financial security of the country.7
Japan reported an 80.8t increase in its gold reserves in March, the culmination of an off-market transaction between two different divisions within the Ministry of Finance. The transaction was facilitated by the central bank, and intended to support stimulus measures in response to the pandemic.8 Japan’s foreign reserves are held between the central bank and the Ministry of Finance, and this gold purchase has been transferred to the latter’s foreign reserves account. Because this was an intergovernmental transfer of gold, rather than a new purchase, it has not been included in our reported central bank net demand number for Q1.
Mirroring this, four central banks accounted for the bulk of Q1 sales. The largest seller of gold during the quarter was Turkey, whose gold reserves declined by 31.5t to 512.6t (38% of total reserves). This was the third consecutive quarter of net sales by Turkey and the largest quarterly decline in Turkish gold reserves since 2017.9 The sales were partly driven by the ongoing economic and currency crisis in the country, which has seen the lira plummet almost 18% since mid-February and the sudden removal of the central bank governor in March.10
The other significant sellers in Q1 were the Philippines (24.9t), the UAE (6.7t) and Russia, whose 3.1t sale was likely related to their coin-minting programme.11
Despite the overall net purchases in Q1, the outlook remains clouded. Large, sporadic purchases and sales in recent months have made it difficult to determine a direction of travel for central bank demand in the short term. But our expectation remains for continued overall net buying for the year, as we believe positive sentiment towards gold is largely unchanged among the central banking community. In Q2, we will be publishing the findings from our 2021 central bank survey, which will provide further insight into current attitudes and intentions towards gold as a reserve asset.