Central banks buy more gold, China leading the way

While the gold price falters after a short period of dramatic weakness, it seems the central banks have a different view of the yellow metal’s value.

The World Gold Council (WGC) reports that, in August, central banks bought 77 tonnes, 38% more than in July.

China, Poland and Turkey headed the list of buyers.

Just as importantly for the metal’s outlook, no significant gold sales were made that month, unlike the situation in the middle of the year.

In April and May, 96 tonnes of gold were sold by central banks.

WGC expects strong fourth quarter

In the past three months gold purchases totalled 219 tonnes and the WGC sees a string fourth quarter for more buying.

The Council notes that the April-May selling was driven by heavy but non-strategic selling by Turkey, that country now again back in buying mode.

The People’s Bank of China bought 29 tonnes during August, its 2023 buying total so far rising to 155 tonnes for the first eight months of the year.

China’s official gold reserve figure is given as 2,165 tonnes, although most gold analysts believe the real amount is many times that figure.

China also makes it easier for personal buying

Apart from more central bank buying, Chinese citizens are now being urged to buy gold (and silver).

The People’s Bank of China has opened a facility for people to convert their cash savings that are now in banks into gold, also to be held in the banks.

Reports say that the PBOC is advising bank customers to make regular monthly purchases, the return on the investment to rise solely from the increasing price of gold over the long term.

“This is a clear message that the gold price is going to rise from current levels,” as one commentator noted.

Poland also a significant buyer

The central bank in Warsaw added 18 tonnes in August, bringing its year-to-date purchases to 88 tonnes getting comfortably close to its intention to buy 100 tonnes over 2023.

Poland’s gold reserves now stand at 314 tonnes.

Turkey is now clearly rebuilding its gold holdings after the sales in April-May and added 15 tonnes in August.

Other buyers were Uzbekistan (nine tonnes), India, Czech Republic, and Singapore (two tonnes each) and Kyrgyzstan added one tonne to its reserves.

Uzbekistan now holds 374.8 tonnes, India 799 tonnes, Czech Republic 23.2 tonnes, Singapore 227.3 tonnes and Kyrgyzstan 17.8 tonnes.

When looking at the figures for the six months to June 30, China bought 103 tonnes, Singapore 73 tonnes and Poland 48 tonnes.

Other buyers in the first half included India (10 tonnes), Czech Republic (eight tonnes), the Philippines (four tonnes), Iraq, the European Central Bank and Qatar (two tonnes each).

Australia and Canada sit out this dance

What is striking is the disparity among the world’s largest gold producers and their central banks’ attitude to gold.

China and Russia are the first and second largest gold producers and are significant holders of gold — 2,165 tonnes and 2,332 tonnes respectively (although, as noted earlier, China’s official figure is almost certainly seriously understated).

But No. 3 and No. 4, Australia and Canada, have central banks that clearly have no interest in bolstering their own gold reserves.

Australia sits at No. 43 in gold reserve rankings with 79.8 tonnes (between Hungary and Kuwait).

The Reserve Bank of Australia sold off 167 tonnes of gold in 1997, a year when the price averaged US$331/oz.

But Canada is not on the WGC list because it sold off all its gold in 2016 and has zero metal in its vaults.

The Bank of Canada prefers US, Chinese and Euro bonds, whose performance is reliant on those economies (unlike gold).