Central Banks and other institutions

Gold Demand Trends Q3 2019

5 November, 2019

Central Banks and other institutions

Y-t-d central bank net purchases 12% higher than in 2018

  • Central bank net purchases of 156t in Q3 bring the y-t-d total to almost 550t
  • Recent buyers were active once again: Turkey, Russia and China led the way
  • September marked the end of the fourth, and final, central bank gold agreement (CBGA)
Tonnes Q3'18 Q3'19 YoY
Central banks & others 253.1 156.2 -38%

Seemingly unfettered by the remarkable scale of purchases since the start of 2018, central bank buying totalled a healthy 156.2t during Q3. Although 38% lower than the same period last year, this is due to Q3 2018 seeing the highest level of quarterly net purchases since 2010. On a y-t-d basis, central bank net purchases totalled 547.5t at the end of September, 12% higher than over the same period in 2018.

Y-t-d central bank net purchases are 12% higher than last year

Y-t-d central bank net purchases are 12% higher than last year

Sources: Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer

 

On a y-t-d basis a total of fourteen central banks have reported adding to their gold reserves by one tonne or more. This continues the trend of purchases by a broad spectrum of emerging market central banks – albeit with a small subset accounting for the bulk of the purchases.

In Q3, Turkish gold reserves saw the largest increase, rising by 71.4t to over 380t.1,2 This included its largest ever monthly purchase, with the central bank buying 41.8t in August. Total gold reserves in Turkey now stand at 385.5t, the highest level on record.3 Russia also continued to see its gold reserves swell, albeit at a slower rate since the central bank began buying gold at a discount in May after adding 55.3t and 38.7t in Q1 and Q2 respectively, 34.9t tonnes were added in Q3. Gold reserves now total 2,241.9t, accounting for a fifth of total reserves and worth over US$100bn. The central bank recently indicated that it had almost halved its allocation to US dollars – from 43.7% to 23.6% - and is using other currencies, such as the yuan and euro, as well as gold, to boost diversification.

Chinese gold reserves also rose during the quarter, by a relatively modest 21.8t. The People’s Bank of China has reported higher gold reserves every month since it resumed buying in December 2018. The importance that China places on its gold reserves, and the diversification role that gold plays in an international reserves portfolio, was highlighted by Wang Chunying, spokesperson of the State Administration of Foreign Exchange (SAFE): "From a long-term and strategic perspective, we will dynamically adjust the allocation of global reserve portfolios as needed to ensure the safety, liquidity, value preservation and appreciation of international reserves."

Other net purchasers of one tonne or more during the quarter included the United Arab Emirates (4.9t), Qatar (3.1t), Kazakhstan (2.1t), Kenya (1.9t) and the Kyrgyz Republic (1.2t).4

Reported net sales amounted to 28.7t during Q3. Net sales continued to be overshadowed by net purchases in Q3, with Uzbekistan (-18t), Guinea (-2.2t) and Mongolia (-1.1t) the only central banks to lower reserves by one tonne or more.5

Farewell to the Central Bank Gold Agreement (CBGA). Q3 also marked the end of the fourth, and final, Central Bank Gold Agreement. When the first CBGA was signed in September 1999 the gold market was drastically different: gold demand was less diverse and the price far lower. The uncoordinated selling by central banks at the time destabilised the market, necessitating a formal agreement to control sales. But sales under subsequent CBGAs progressively declined to inconsequential levels as the gold market became more diverse and stable, and central banks became net purchasers in the wake of the global financial crisis. As such, it was announced in July that a formal agreement was no longer needed. The signatories to the final agreement signed off by confirming that “gold remains an important element of global monetary reserves and none of them currently has plans to sell significant amounts of gold”.

The CBGA became less relevant after the global financial crisis

The CBGA became less relevant after the global financial crisis

Sources: European Central Bank, IMF IFS, Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer

Note: Full year (FY) periods cover central bank activity between October-September to correspond to the CBGA

Footnotes

  1. Excluding changes in commercial banks’ gold holdings at the central bank as part of the Reserve Option Mechanism (ROM) policy.

  2. This excludes data for September, which was not available at the time of publication.

  3. Monthly IMF gold reserves data for Turkey extends back to December 1950

  4. All country-level data includes data available for Q3 at the time of publication.

  5. It has been reported in the media that the Bank of Mongolia bought 11.2t y-t-d, however this is yet to be reflected in the data reported by the IMF.

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