A slowdown in the pace of gold buying by several banks in the second half of the year coincided with a sizeable pick-up in sales by others, causing overall central bank demand to swing between modest net purchases and sales, reports World Gold Council (WGC) Europe, Middle East and Africa senior analyst Krishan Gopaul.

He says that although 2020 was the eleventh consecutive year of central bank net purchases, it nonetheless finished on a “somewhat uncertain note”.

In December 2020, net purchases of 20.6 t took place, with new data by the WGC pointing to central banks switching back to small net sales of 9.4 t in January. “This is the third month of net sales since June 2020 and the smallest in scale,” Gopaul says.

Activity on the buying and selling sides of the market was limited, with just four central banks accounting for the overall change. On the buying side, Uzbekistan, which added 8.1 t, and Kazakhstan, which added 2.8 t – both gold producers and frequent buyers in recent years – were the only banks to meaningfully increase gold reserves.

On the other end of the spectrum, Turkey, which sold 17.2 t, and Russia, which sold 3.1 t, were the notable sellers.

Russia’s sale is likely related to the January announcement that the central bank will start minting a 2021 commemorative gold coin. This is part of the bank’s 2021 coin-mining plan, which itself is a part of its long-standing coin-minting programme and similar to programmes from other central banks, such as the Bundesbank, which often result in small sporadic sales.

CENTRAL BANK 2021 DEMAND

While the latest WGC data proves useful, Gopaul says it may still be too early to determine the direction of any new trend. “As we noted in our recent Gold Demand Trends report, these intermittent sales have resulted in a more complex picture of central bank demand at the end of 2020, having created a small interruption in the pattern of consistent buying since 2010.”

He says the WGC will continue to monitor the demand from central banks over the next several months to determine whether the picture becomes any clearer. “Until then, our expectation remains that central banks will stay net buyers in 2021, albeit at a moderate pace which is below the record levels seen in previous years.”

As an example, Gopaul says early data for February indicates that the Reserve Bank of India added 11.2 t to its gold reserves. “While this data is not yet reflected on our monthly statistics, it highlights the relevant role that gold plays in foreign reserve management.”

Going forward, he says the WGC believes the possibility of capital inflows into emerging markets and the low interest rate environment may lead to central banks adding gold for diversification purposes.