Thursday , 21 November 2024

Why Do Central Banks Buy Gold? Here’s Why

Back in the early 1990s and 2000s, central banks were continuously selling off gold as strong economic growth during that time rendered bullion less attractive than currencies in many places….Then the 2007–08 financial crisis came, triggering a complete 180 [degree turn] in the official banks’ approach to gold. From 2010 onwards, central banks have been net buyers on an annual basis. About 80% of central banks currently hold gold as part of their international reserves.

This article is an edited ( [ ]) and abridged (…) excerpt from an article by Richard Mills with added data and copy from BullionVault.

Central Bank Gold Holdings

…After decades of shedding their holdings, Central Banks are rebuilding them. According to the IMF, they’re currently at 1.16 billion troy ounces [Gold: What Do Terms “Karat” & “Troy” Mean? What’s A “Carat”?] – roughly $2.7 trillion of $12.3 trillion in foreign exchange reserves – [amounting to]…about 17 percent of all the gold ever mined, with reserves topping 36,699 metric tons (MT) as of year-end 2023. They acquired the vast majority in the last 14 years after becoming net buyers of the metal in 2010.

Country 20 years change (tonnes) 10 years change (tonnes) 5 years change (tonnes) 3 years change (tonnes) Summer 2024 total tonnes held Last 3 years change as % of current holdings
Afghanistan 21.9 0.0 0.0 0.0 21.9 0.0%
Albania 1.2 1.8 1.3 0.6 3.4 17.6%
Algeria 0.0 0.0 0.0 0.0 173.6 0.0%
Argentina 19.1 0.0 6.8 0.0 61.7 0.0%
Armenia 0.0 0.0 0.0 0.0 0.0 0.0%
Aruba, Kingdom of the Netherlands 0.0 0.0 0.0 0.0 3.1 0.0%
Australia 0.2 0.0 11.2 6.1 79.9 7.6%
Austria -37.5 0.0 0.0 0.0 280.0 0.0%
Azerbaijan 104.8 54.6 9.3 3.0 104.8 2.9%
Bahamas 0.0 0.0 0.0 0.0 0.0 0.0%
Bahrain 0.0 0.0 0.0 0.0 4.7 0.0%
Bangladesh 10.8 0.8 0.3 0.3 14.3 2.1%
Barbados 0.0 0.0 0.0 0.0 0.0 0.0%
Belarus 51.0 12.7 5.5 4.0 54.1 7.4%
Belgium -30.4 0.0 0.0 0.0 227.4 0.0%
Belize 0.0 0.0 0.0 0.0 0.0 0.0%
Benin 0.0 0.0 0.0 0.0 0.0 0.0%
Bhutan 0.7 0.7 0.7 0.0 0.7 0.0%
Bolivia -5.9 -20.1 -20.1 -20.1 22.4 -89.7%
Bosnia and Herzegovina 1.5 -1.5 -1.5 -1.5 1.5 -100.0%
Brazil 96.1 62.5 62.3 8.6 129.7 6.6%
Brunei 4.5 0.3 0.0 0.0 4.5 0.0%
Bulgaria 1.1 0.9 0.4 0.1 40.9 0.2%
Burkina Faso 0.0 0.0 0.0 0.0 0.0 0.0%
Burundi 0.0 0.0 0.0 0.0 0.0 0.0%
Cabo Verde 1.0 1.0 1.0 0.0 1.0 0.0%
Cambodia 29.9 29.9 11.8 -8.1 42.3 -19.1%
Cameroon -0.9 0.0 0.0 0.0 0.0 0.0%
Canada -3.4 -3.0 0.0 0.0 0.0 0.0%
Cayman Islands 0.0 0.0 0.0 0.0 0.0 0.0%
Central African Republic -0.3 0.0 0.0 0.0 0.0 0.0%
Chad -0.3 0.0 0.0 0.0 0.0 0.0%
Chile 0.0 0.0 0.0 0.0 0.2 0.0%
China 1,664.3 1,210.2 337.8 316.0 2,264.3 14.0%
Colombia -5.5 -5.7 -14.2 0.0 4.7 0.0%
Comoros, Union of the 0.0 0.0 0.0 0.0 0.0 0.0%
Congo, Democratic Republic 0.0 0.0 0.0 0.0 0.0 0.0%
Congo, Republic of -0.3 0.0 0.0 0.0 0.0 0.0%
Costa Rica -0.1 0.0 0.0 0.0 0.0 0.0%
Croatia 1.9 1.9 1.9 1.9 1.9 100.0%
Curaçao and Sint Maarten 9.2 -3.9 -3.9 -3.9 9.2 -42.4%
Cyprus -0.6 0.0 0.0 0.0 13.9 0.0%
Czech Republic 27.9 30.8 33.3 31.6 41.5 76.1%
Denmark 0.0 0.0 0.0 0.0 66.5 0.0%
Dominican Republic 0.0 0.0 0.0 0.0 0.6 0.0%
Ecuador 0.0 14.2 9.4 -5.0 26.3 -19.0%
Egypt 50.9 51.0 47.8 46.0 126.6 36.3%
El Salvador -13.2 -5.5 0.0 0.0 1.4 0.0%
Equatorial Guinea 0.0 0.0 0.0 0.0 0.0 0.0%
Eritrea 0.0 0.0 0.0 0.0 0.0 0.0%
Estonia 0.0 0.0 0.0 0.0 0.2 0.0%
Ethiopia 0.0 0.0 -0.2 0.0 0.0 0.0%
Fiji 0.0 0.0 0.0 0.0 0.0 0.0%
Finland -0.1 -0.1 -0.1 -0.1 49.0 -0.2%
France -587.7 1.6 0.9 0.7 2,437.0 0.0%
Gabon -0.4 0.0 0.0 0.0 0.0 0.0%
Georgia 0.0 0.0 0.0 0.0 0.0 0.0%
Germany -85.1 -32.6 -15.2 -7.5 3,351.6 -0.2%
Ghana 0.0 0.0 0.0 0.0 8.7 0.0%
Greece 7.1 2.2 1.3 0.5 114.5 0.4%
Guatemala 0.0 0.0 0.0 0.0 6.9 0.0%
Guinea -0.3 -0.2 -4.6 0.0 0.0 0.0%
Guinea-Bissau 0.0 0.0 0.0 0.0 0.0 0.0%
Haiti 1.8 0.0 0.0 0.0 1.8 0.0%
Honduras 0.0 0.0 0.0 0.0 0.7 0.0%
Hong Kong 0.0 0.0 0.0 0.0 2.1 0.0%
Hungary 91.4 91.4 63.0 0.0 94.5 0.0%
Iceland 0.0 0.0 0.0 0.0 2.0 0.0%
India 473.6 273.6 213.2 127.7 831.4 15.4%
Indonesia -17.9 0.5 0.1 0.0 78.6 0.0%
Iraq 148.3 58.5 52.0 51.9 148.3 35.0%
Ireland 6.5 6.0 6.0 6.0 12.0 50.0%
Israel 0.0 0.0 0.0 0.0 0.0 0.0%
Italy 0.0 0.0 0.0 0.0 2,451.9 0.0%
Ivory Coast 0.0 0.0 0.0 0.0 0.0 0.0%
Jamaica 0.0 0.0 0.0 0.0 0.0 0.0%
Japan 80.8 80.8 80.8 0.0 846.0 0.0%
Jordan 57.3 53.3 36.3 7.7 70.1 11.0%
Kazakhstan 243.4 143.0 -76.5 -87.1 298.8 -29.1%
Kenya 0.0 0.0 0.0 0.0 0.0 0.0%
Korea 90.3 0.0 0.0 0.0 104.4 0.0%
Kosovo 0.0 0.0 0.0 0.0 0.0 0.0%
Kuwait 0.0 0.0 0.0 0.0 79.0 0.0%
Kyrgyz Republic 23.2 22.0 12.6 18.2 25.8 70.5%
Laos -3.6 -8.9 -0.9 0.0 0.0 0.0%
Latvia -1.0 0.1 0.1 0.0 6.7 0.0%
Lebanon 0.0 0.0 0.0 0.0 286.8 0.0%
Lesotho, Kingdom of 0.0 0.0 0.0 0.0 0.0 0.0%
Libya 2.9 30.1 30.1 30.1 146.7 20.5%
Lithuania 0.0 0.0 0.0 0.0 5.8 0.0%
Luxembourg -0.1 -0.1 0.0 0.0 2.2 0.0%
Malawi -0.4 -0.4 0.0 0.0 0.0 0.0%
Malaysia 2.5 3.4 0.0 0.0 38.9 0.0%
Maldives 0.0 0.0 0.0 0.0 0.0 0.0%
Mali 0.0 0.0 0.0 0.0 0.0 0.0%
Malta 0.1 0.0 0.0 0.0 0.2 0.0%
Mauritania 0.0 -0.4 -1.0 0.0 0.0 0.0%
Mauritius 10.5 8.5 0.0 0.0 12.4 0.0%
Mexico 115.0 -3.1 0.1 0.1 120.2 0.1%
Micronesia, Federated States of 0.0 0.0 0.0 0.0 0.0 0.0%
Moldova 0.1 0.0 0.0 0.0 0.1 0.0%
Mongolia 1.5 2.2 -14.3 -8.5 4.7 -180.9%
Montenegro 0.0 0.0 0.0 0.0 0.0 0.0%
Morocco 0.1 0.0 0.0 0.0 22.1 0.0%
Mozambique -0.3 -0.5 -0.5 0.0 3.9 0.0%
Myanmar 0.1 0.0 0.0 0.0 7.3 0.0%
Namibia 0.0 0.0 0.0 0.0 0.0 0.0%
Nepal 3.2 4.1 1.6 1.6 8.0 20.0%
Netherlands -165.0 0.0 0.0 0.0 612.5 0.0%
New Zealand 0.0 0.0 0.0 0.0 0.0 0.0%
Nicaragua -0.5 0.0 0.0 0.0 0.0 0.0%
Niger 0.0 0.0 0.0 0.0 0.0 0.0%
Nigeria -21.4 -21.4 0.0 0.0 0.0 0.0%
North Macedonia, Republic of 4.1 0.1 0.0 0.0 6.9 0.0%
Norway 0.0 0.0 0.0 0.0 0.0 0.0%
Oman 6.7 6.7 6.7 6.7 6.7 100.0%
Pakistan -0.6 0.3 0.1 0.1 64.7 0.2%
Papua New Guinea -0.7 -0.7 0.0 0.0 1.3 0.0%
Paraguay 7.1 0.0 0.0 0.0 8.2 0.0%
Peru 0.0 0.0 0.0 0.0 34.7 0.0%
Philippines -116.0 -60.3 -63.8 -22.0 134.1 -16.4%
Poland 274.5 274.5 149.2 145.6 377.4 38.6%
Portugal -99.6 0.2 0.2 0.1 382.7 0.0%
Qatar 105.8 94.0 67.3 46.6 106.4 43.8%
Romania -1.5 -0.1 -0.1 0.0 103.6 0.0%
Russia 1,945.8 1,241.2 128.9 43.6 2,335.9 1.9%
Rwanda 0.0 0.0 0.0 0.0 0.0 0.0%
San Marino 0.0 0.0 0.0 0.0 0.0 0.0%
Saudi Arabia 180.1 0.2 0.0 0.0 323.1 0.0%
Senegal 0.0 0.0 0.0 0.0 0.0 0.0%
Serbia 30.8 24.2 20.1 4.8 41.2 11.7%
Singapore 113.4 113.4 113.4 87.1 240.8 36.2%
Slovakia -3.4 0.0 0.0 0.0 31.7 0.0%
Slovenia -4.4 0.0 0.0 0.0 3.2 0.0%
Solomon Islands 0.0 -0.7 -0.7 -0.2 0.0 0.0%
South Africa 1.6 0.3 0.1 0.1 125.4 0.1%
South Sudan 0.0 0.0 0.0 0.0 0.0 0.0%
Spain -241.7 0.0 0.0 0.0 281.6 0.0%
Sri Lanka 1.6 -15.5 -13.2 0.0 6.7 0.0%
Suriname 0.6 -0.1 -0.1 -0.3 1.2 -25.0%
Sweden -59.7 0.0 0.0 0.0 125.7 0.0%
Switzerland -452.3 0.0 0.0 0.0 1,040.0 0.0%
Syria -0.1 0.0 0.0 0.0 25.8 0.0%
Taiwan 0.9 -0.9 -0.9 -0.9 422.7 -0.2%
Tajikistan 8.0 0.2 -13.8 3.3 8.5 38.8%
Tanzania 0.0 0.0 0.0 0.0 0.0 0.0%
Thailand 150.5 82.1 80.5 -9.7 234.5 -4.1%
Timor-Leste 0.0 0.0 0.0 0.0 0.0 0.0%
Togo 0.0 0.0 0.0 0.0 0.0 0.0%
Trinidad and Tobago 0.0 0.0 0.0 0.0 1.9 0.0%
Tunisia 0.0 0.0 0.0 0.0 6.8 0.0%
Turkey 660.0 263.2 269.2 63.7 776.1 8.2%
Ukraine 7.2 -13.0 2.5 0.7 27.1 2.6%
United Arab Emirates 74.7 74.7 67.2 19.4 74.7 26.0%
United Kingdom -2.2 0.0 0.0 0.0 310.3 0.0%
United States -2.6 0.0 0.0 0.0 8,133.5 0.0%
Uruguay -0.2 -0.2 0.0 0.0 0.1 0.0%
Uzbekistan 365.2 114.5 15.0 7.2 365.2 2.0%
Venezuela -304.8 -313.7 -77.0 -27.0 52.0 -51.9%
Vietnam 0.0 0.0 0.0 0.0 0.0 0.0%
Yemen -1.6 -1.6 0.0 0.0 0.0 0.0%
Zambia 0.3 0.3 0.3 0.0 0.3 0.0%
Zimbabwe -35.3 0.7 0.7 0.7 0.7 100.0%
Note: These numbers are built from the International Financial Statistics (IFS) reported by national central banks to the IMF for end-June 2024. Not all central banks make regular reports, and BullionVault’s table of central-bank gold buying does not include any estimates for ‘unreported’ purchases (or sales). But it does, where possible, include updates where a central bank has made public statements about its gold reserves which it didn’t report to the IMF or which the IMF hasn’t published.
Overall, the total quantity of gold held in national central-bank reserves has increased almost 19% by weight since the summer of 2004 – and it has jumped 7-fold in US Dollar value to $2.4 trillion – led by Russia, China, India and Turkey. Source

Which countries are buying the most gold for their reserves?

Russia and China together account for more than 80% of the net central-bank gold demand reported to the International Monetary Fund since 2004. But looking at just the last 3 years, their proportion of the worldwide total falls to barely 30%. That’s because, while China continued to buy gold for 18 months non-stop up to May 2024, Russia stopped and even reported some small sales amid the Western sanctions over its invasion of Ukraine.
Top 10 central bank gold buyers over the last three years
Demand has meanwhile deepened among several other, smaller buyers led most dramatically by Poland and Turkey – both members of the US-led NATO military alliance – plus developed-economy state Singapore.
Despite the overall growth in central-bank gold reserves, more than 1-in-5 (23%) of the countries covered in this table didn’t hold any gold at any point over the past 20 years. More notably, almost one-in-three of the other 126 (30%) owned less gold in summer 2024 than they did 20 years ago. Just over 1/3rd of those sellers are rich-world nations, leaving only 4 advanced economies who have actively chosen to buy gold and grow their bullion reserves since 2004 (Ireland, Japan, Korea, Singapore) so there’s been a big split, in other words, between rich-world and emerging-market nations.

Why Do Central Banks Like Gold?

  1. Central banks like gold because the metal is expected to hold its value through turbulent times and, unlike currencies and bonds, it does not rely on any issuer or government. It also enables central banks to diversify away from assets like US Treasuries and the dollar.
  2. INN adds that central banks purchase gold…:
    • to mitigate risk,
    • to hedge against inflation and
    • to promote economic stability…
  3. A Bloomberg opinion piece says central banks are buying it for the long term:
    • to hedge political risk;
    • to underpin their own currencies;
    • to offset any decline in the value of the dollar; and in place of US government bonds, which given the rate at which the US is accumulating debt ($1 trillion every 100 days, says Bank of America Corp.) are no longer deemed to be free of risk…
  4. UBS says…central banks want to hold more bullion as a buffer against any current or future sanction and so It’s no surprise then to see Russia and China being the most aggressive gold buyers in recent years, accounting for about half of the total tonnage bought worldwide over the past two decades.
    • Forbes Finance Council’s Sanford Mann describes the distinction perfectly: “Where US, European and Asian banks tend to see gold as a historical legacy asset, EMDE banks tend to see it as a strategic asset.”

Why Doesn’t the Central Bank Sell Its Gold?

…To my mind, it’s because egregious money-printing throughout the Western world has devalued currencies… Excessive borrowing and money-printing has caused the US debt to balloon to $35 trillion. The currency of every empire since the Romans, and their denarius, has eventually become worth less…

Conclusion

Notwithstanding their motivations for buying gold, the importance of central bank gold holdings cannot be understated…According to the World Gold Council, in mid-2023, 70% of central bankers polled in a survey said they expected global gold reserves to increase over the next 12 months. Central banks added 1,037Mt of gold to their vaults in 2023, the second year in a row they exceeded 1,000Mt. In the first quarter of 2024, CBs bought another record 290 Mt, of gold, reports the WGC.