Following continuous quarterly net purchases since the beginning of 2011, central banks switched to being modest net sellers in Q3, reducing global gold reserves by 12.1t. Nevertheless, central banks remain net purchasers on a y-t-d basis, with demand for the first three quarters totalling 220.6t. We continue to expect central banks to remain net buyers in 2020, albeit at a slower pace than in the previous two years.
Activity in Q3 reflects two trends: a slowdown in purchases as the year has progressed combined with higher sales, which increased during the last quarter.1
More buying from familiar faces. Despite the quarterly net sales, six central banks increased their reserves in Q3 by a tonne or more, although total gross purchases were a modest 33t. COVID-19 continued to inflict widespread economic hardship, and this pre-occupied central banks and governments around the world. Uncertainty has been elevated by the pandemic, motivating many investors – including central banks – to seek assets that will diversify and protect the value of their portfolios in times of crisis. Central banks have been particularly hard hit by the low and negative interest rates on sovereign bonds, which make up the largest proportion of reserve assets for many. United Arab Emirates (7.4t), India (6.8t), Qatar (6.2t), Kyrgyz Republic (5t), Kazakhstan (4.9t), and Cambodia (1t) were notable, and familiar, buyers during the quarter.
Sales: sizable but concentrated. Reported gross sales jumped to 78.9t in Q3, with the rise mainly attributable to two central banks: Turkey and Uzbekistan.
Turkey reduced gold reserves by 22.3t during the quarter, the first quarterly decline since Q4 2018. Turkey has a range of gold policy tools which can affect the level of official reserves, especially at times of greater demand.2 Higher domestic gold demand in August and September led to heightened gold trading activity between commercial banks and the central bank, resulting in this decline. But on a y-t-d basis, the country remains the biggest gold buyer, adding 148.7t. Its official gold holdings now amount to 561t and 47% of total reserves. In August, Hasan Yucel, the head of Turkey’s Gold Miners Association, indicated that national gold production was expected to increase by 44% this year. He also stated that since 2017 the central bank has been the sole buyer of all domestic output and that will likely continue this year.3
Uzbekistan reduced its gold reserves by 34.9t during Q3, bringing y-t-d net sales to 28.6t. Despite the sizable sale in Q3, gold reserves of 307t still account for 56% of total reserves. The country has seen a rise in gold exports this year as it looks to utilise its gold reserves, capitalising on higher prices to combat the economic impact of the pandemic.4 Tajikistan (9.2t), Philippines (7.8t), Mongolia (2.4t), and Russia (1.2t) were the other notable sellers during the quarter.5