The largest purchase of gold in 55 years by the world’s central banks
World’s central banks are collecting gold at the fastest pace since 1967, and it is noted that China and Russia are major buyers, indicating that some countries are keen to diversify their reserves away from the US currency.
The World Gold Council revealed data showed that demand for Gold has exceeded any annual figure in the past 55 years.
The November estimate was much higher than the official figures released by central banks, prompting speculation about the identity of the buyers and their motives.
In this regard, Adrian Ash, head of research at the Bullion Volt Gold Market, said, “The flight of central banks to gold indicates that the geopolitical background is a state of mistrust, suspicion and uncertainty, after the United States and its allies froze Russia’s reserves”.
The last time this level of buying was seen marking a historic turning point for the global monetary system was in 1967, when European central banks bought massive amounts of gold from the United States, driving down prices and the collapse of the London Gold Pool.
This hastened the eventual demise of the Bretton Woods system, which pegged the value of the US dollar to the precious metal.
Last November, the World Gold Council estimated that the official financial institutions in the world bought 673 tons.
In the third quarter alone, central banks bought nearly 400 tons of gold, the largest overbought in three months since quarterly records began in 2000.
Conservative estimates from the World Gold Council outpace reported purchases to the International Monetary Fund from individual central banks, which stand at 333 tons in the nine months to September.
Among the most prominent buyers is Türkiye, which bought the largest amount in the third quarter by 31 tons, which raised gold to about 29% of its total reserves.
Uzbekistan followed with 26 tons, while Qatar in July made the largest monthly purchase ever since 1967.
The discrepancy between the World Gold Council’s estimates and the official figures tracked by the International Monetary Fund can be explained in part by the role of government agencies, along with central banks in Russia, China and other countries that can buy and hold gold without reporting it as reserves.
In recognition of its quantity – but also perhaps in an attempt to indicate its limited role – the People’s Bank of China reported last month that in November it achieved the first increase in its gold holdings since 2019, amounting to 32 tons, at a value of approximately $ 1.8 billion.
But the gold industry says “China buying is almost certainly higher”.
“Gold prices would have peaked at $75 in November if the People’s Bank of China had only bought 32 tons,” said Nicky Shiels, metals strategist at precious metals trading firm MSKBAMB.
As for Russia, the sanctions have caused major problems for its gold mining industry – the largest in the world after China – in terms of selling abroad.
The country produces approximately 300 tons annually, but its domestic market is only 50 tons.
At the same time, Western governments have frozen $300 billion of Russia’s foreign currency reserves through sanctions, which, Shiels says, “have led countries outside the West to ask, ‘Should we be exposed to so many dollars when the United States and Western governments can confiscate that at any time?’
In conclusion, experts believe that “the message that these central banks send by placing a larger share of their reserves in gold is that they don’t want to rely on the dollar as their main reserve asset”.