Following net purchases in October, central banks returned to net selling in November. Global official reserves also declined by 6.5 t during the month, gold industry market development organisation World Gold Council (WGC) market intelligence manager Krishan Gopaul said in a press release published this month.
He added that, as in August and September, when central banks were also net sellers, this pattern was the result of continued moderate buying being offset by a few sizeable sales.
“At a country-level, we can see that gross purchases amounted to 16 t in November, broadly consistent with the levels of gold accumulation in August and September. Uzbekistan added another 8.4 t to their gold reserves, while Qatar (3.1 t), India (2.8 t), and Kazakhstan (1.7 t) were the other countries to increase official gold reserves in November.”
However, this buying was more than offset by gross sales of 23.3 t. In Turkey, higher local demand led to increased trading between domestic commercial banks and the central bank resulting in a 20.9 t reduction in its reserves. This, Gopaul said, was not a strategic decision to lower gold reserves by the central bank. Mongolia was the other notable seller, reducing official gold reserves by 2.4 t.
Overall, central bank demand has become more variable in recent months, oscillating between net purchases and net sales, marking a change from the consistent buying that the council had become used to from this sector. It therefore poses a couple of important questions, he noted.
“Firstly, does this mean that the existing trend in net buying is now making way for a new trend? Or no trend at all?”
Since 2010, when central banks became consistent quarterly net buyers, there have nevertheless been several instances of monthly net sales, although not quite as concentrated as in the second half of 2020.
And, with the exception of Turkey, he explained that these recent larger sales may be a consequence of the heightened uncertainty and fiscal pressure generated by the global Covid-19 pandemic.
Gold outperformed many other traditional reserve assets in 2020, giving central banks additional firepower to stabilise markets and currencies. Gopaul opined that it was too soon to confidently conclude whether the previous trend of consistent net buying would continue, or if it had ended and a new trend had emerged. The data for December and early 2021 will be crucial to help build a bigger picture.
“Secondly, does this signal a longer-term change in attitude towards gold from central banks? “We do not believe that central banks have shifted their mindset towards gold. As noted above, gold’s performance in 2020, of over 25%, boosted reserve portfolios when it was needed.
“Our central bank survey, conducted last year, showed that gold’s role as a risk-mitigation asset is highly valued. While some uncertainty has eased in recent months, for example, the US elections and Brexit, the economic impact of the pandemic still poses significant risks which need to be managed.”
Despite recent net selling, central banks were on course to finish 2020 as net purchasers, making it 11 consecutive years since they were last net sellers on a yearly basis. The WGC will cover central bank demand for 2020 in more detail in the next edition of its Gold Demand Trends, which will be published at the end the month.
Further, WGC chief marketing strategist John Reade will be speaking at the virtual 2021 Investing in African Mining Indaba which will take place on February 2 and 3.
Reade’s session, which will take place on February 3, will place the spotlight on ‘The Rise & Rise of Gold in the Pandemic’ and will be moderated by New York-based law firm White & Case partner Rebecca Campbell.
The talking points which will be explored include the global economic impact of Covid-19 on gold demand, the effect on geopolitical relationships and lower global growth as well as exploring the changes in gold production and trading prompted by the global pandemic.