Kitco News reports on central banks' interest in increasing their gold reserves and predicts that this interest will continue. This speaks for itself about gold as a safe haven.
Central banks have been eager buyers of gold over the past two years, and analysts expect the trend to continue into 2020.
Net purchases by the public sector totaled 562 tons at the end of October 2019, according to the World Gold Council (WGC). In 2018, purchases totaled 656 tons, which is a record for central bank purchases since 1967 according to WGC data.
"We believe that next year purchases will continue at the same level, although not as abundant as this year," says Philip Newman from a London consulting firm.
Goldman Sachs predicts that central banks will acquire about 650 tons of gold globally in 2020, while Standard Chartered estimates purchases to be around 525 tons.
Gold is safe, liquid, and productive
Hewitt states that central banks evaluate three main criteria when making decisions to increase the amount of gold in their currency reserves.
"For central banks, the strength of gold is that it is safe, liquid, and generates returns," says Hewitt. He also lists two other factors that have caused central bank purchases to surge in recent years:
"First, we are living in the midst of geopolitical tensions," Hewitt explains. Several key gold-buying countries and economies are involved in this. "Central banks are turning to gold to balance risk." Additionally, Newman notes that many central banks are trying to move away from the US dollar, particularly Russia due to US sanctions.
As recently as 2017, most public sector purchases came from a few central banks, including Russia, Turkey, and Kazakhstan. However, in 2018 and 2019, the number of central bank buyers has increased, including some that had not bought gold for years. The largest buyers in the first 10 months of 2019 were Turkey (144.8 tons), Russia (139 tons), Poland (100 tons), and China (95.8 tons). Other buyers included Kazakhstan, India, Qatar, Ecuador, Serbia, the UK, Argentina, Colombia, Kyrgyzstan, Mongolia, Belarus, Guinea, Egypt, Mauritania, Albania, Malta, Ukraine, and Greece.
Goldman Sachs predicts that central bank gold purchases could account for up to 22% of global supply in 2019.
Central banks are continuously buying gold.
According to Hewitt, public sector purchases appear to be ongoing. Central banks seem to be carefully considering their purchases through a lengthy political process and are buying gold for strategic reasons rather than reacting to daily price changes.
"When these entities start buying, they will continue to buy for a longer period," Hewitt says. For example, he notes that Kazakhstan has been a regular buyer of gold since 2010.
Observers also emphasize that central banks have not only been buying gold but have also sold very little. In 1999, when European central banks sold precious metals, they began to adhere to central bank sales agreements in an effort to limit the amount of gold coming to market during the year to prevent sales from causing an imbalance in the gold market.
These agreements have not been continued since, Hewitt notes. The Commerzbank analyst emphasizes that they are no longer necessary, as hardly any of the European central banks are selling their gold. The German central bank sells a modest amount of gold each year only for its coin minting program, Hewitt says.
The Commerzbank analyst further comments that one or more Western European central banks may appear in the market as buyers during the year 2020. “One such candidate is the Dutch central bank (DNB), which published a significant statement on its website in October regarding the role of gold.” According to Commerzbank, it described gold as an anchor of trust in the financial system. According to DNB, gold reserves could serve as a foundation for a new beginning if the current system were to collapse. “If one or more Western central banks were to actively start buying gold, this would attract significant attention and cause reactions in the gold market.”
This article is a translated summary of Kitco News original articleCentral banks’ appetite for gold expected to continue
