Central bank gold holdings show highest level of growth since 2008

According to the World Gold Council, net gold purchases by central banks worldwide amounted to 90 tonnes in the first two months of 2019, compared to just 56 tonnes in the same period last year. A comparably high level of growth was last seen in 2008, at the beginning of the financial crisis.

Strong buying activity, little outflow

In February 2019, central banks purchased over 51 tonnes of gold, the highest monthly increase since October 2018. At the same time, however, outflows accumulated to just 0.2 tonnes – in contrast to the previous months, when between 18 and 25 tonnes of gold were sold by central banks. According to market experts of the World Gold Council, the current buying motivation of central banks is first and foremost an expression of a policy of diversifying their reserves and refocusing on the principal objective of investing in safe and liquid assets. This is not surprising, given the heightened geopolitical and economic uncertainty.

Central banks continue to rely on gold

As part of the Gold Demand Trends Annual Report 2018, the World Gold Council published statistics based on a survey regarding the significance of gold for central banks, showing that 76 per cent of central banks viewed the role of gold as a safe haven as highly relevant, and 59 per cent citing its effectiveness as a portfolio diversifier. One fifth of the central banks surveyed signalled their intention to further increase their gold reserves over the next twelve months. During the first few months of this year, the central banks of China and Russia showed strong buying activity, leading the commodity analysts of Landesbank Baden-Württemberg (LBBW) to the suggestion that the current buying trend among central banks might continue. Accordingly, LBBW analysts raised their forecast for the US gold price at the end of 2019 from US$ 1,350 to 1,400.