Friday 30 December 2022, 09:17
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Central banks are buying gold at the fastest pace since 1967, exceeding any annual amount over the past 55 years.
While China and Russia won’t admit it, market sources say central banks in Beijing and Moscow want to reduce the weight of the US dollar as a reserve currency as much as possible and are buying gold.
Officially, the largest gold purchases have been made by the central banks of Turkey, Uzbekistan and Qatar, but inconsistencies in the data show that there are unreported purchases.
The gold standard
The last time this level of buying was seen it marked a historic turning point for the global monetary system, writes the Financial Times.
In 1967, European central banks bought huge quantities of gold from the United States, which led to a sharp drop in the price and the collapse of London’s gold reserves.
This hastened the demise of the Bretton Woods system, which tied the value of the US dollar to the precious metal. In 1971, US President Richard Nixon announced a “temporary” abandonment of the gold standard, but a comeback has not occurred to this day.
Today’s central bank rush on gold “would suggest that the geopolitical backdrop is one of mistrust, doubt and uncertainty” after the US and its allies froze Russia’s dollar reserves, said Adrian Ash, head of research at BullionVault, a gold marketplace.
The record of the last 55 years
Data compiled by the World Gold Council – WGC, an industry-funded group, showed that demand for the precious metal has exceeded any annual amount over the past 55 years. Last month’s estimates are also much higher than data officially reported by central banks, sparking industry speculation about the identity of the buyers and their motivations.
Last month, the WCG estimated that the world’s official financial institutions bought 673 tons. WGC’s conservative estimates exceed purchases reported a IMF and individual central banks, amounting to 333 tonnes in the nine months to September.
The discrepancy between the WGC estimates and the officially reported figures tracked by the IMF can be partly explained by the fact that, apart from the central banks of Russia and China, there are others who can buy and hold quantities of gold without declaring it as reserves. .
The People’s Bank of China reported earlier this month that November saw its first increase in gold reserves since 2019, up 32 tonnes, worth about $1.8 billion. However, the gold industry says buying from China is almost certainly higher.
The Central Bank of Russia – CBR stopped reporting monthly data on its gold reserves shortly after the start of the war in Ukraine. But CBR officials rejected the suggestion to buy gold.
Market specialists, however, believe that the purchases from Russia and China indicate a growing reluctance by countries to rely on the greenback.
