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Central banks set to boost gold reserves

Central banks across the world are upbeat on gold, as around 21 per cent of them intend to increase their reserves in the yellow metal over the next 12 months, despite shedding a small part of their reserves at the start of the year.

Central banks are also increasingly valuing gold’s performance during periods of crisis, as this attribute now tops their rationale for holding gold, according to a survey jointly undertaken by the World Gold Council and YouGov.

“These results come amid ongoing uncertainty stemming from the Covid-19 pandemic, a situation which has added significant complexity to central bank reserve management,” said the ‘2021 Central Bank Gold Reserves (CBGR)’ survey report.

According to WGC data, central banks bought 272.9 tonnes of bullion in 2020. Purchases last year were a whopping 60 per cent lower than the record 668 tonnes added in 2019.

While central banks did add 8.8 tonnes of gold to their reserves in February this year, they have offloaded 16.7 tonnes of their gold reserves so far in 2021, recording the weakest start to their gold buying in over a decade. Notable buyers in 2021 include India (11.2 tonnes), Uzbekistan (7.2 tonnes), and Kazakhstan (1.6 tonnes).

The CBGR survey indicates continuing central bank interest in gold. Potentially driving this interest is a growing recognition of gold’s financial characteristics, particularly during periods of crisis, said the report.

Central banks have been net buyers of gold for 11 consecutive years. Their combined reserves stand 35,394.8 tonnes, including the Euro Area’s 10,772.1 tonnes.

The top 10 central banks with the largest gold reserves have remained mostly unchanged for the last few years. The US, the largest gold reserve-holder accounts for 8,133.5 tonnes, constituting 78 per cent of the country’s total monetary reserves. The second top gold reserve holder is Germany with 3,361.1 tonnes. China has 1948.3 tonnes representing 3.3 per cent of its total reserves, while India has 669 tonnes of gold reserves.

The Central Bank of the UAE has 54.2 tonnes of gold, representing 2.9 per cent of its total reserves.

“At the same time, ongoing concerns about global market volatility and the path of the post-pandemic economic recovery continue to inform central banks’ views of gold. These same factors may also be clouding respondents’ opinions on the overall direction of central bank gold holdings despite having more certainty on their own plans for gold,” the report added.

Looking ahead, the World Gold Council report said that central banks will need to balance financial and geopolitical uncertainty with a potentially strong pickup in global growth.

“We believe that central banks will continue to be net buyers of gold, although total purchase volumes may not be as large as in the previous decade.”

The slightly stronger conviction towards gold amongst respondents in this year’s survey may suggest that central banks have a clearer picture of their plans for the coming year, and is supportive of continued gold purchases from the official sector, it added.

issacjohn@khaleejtimes.com