Central banks back in a buying mood

News Arnulf Hinkel, Financial journalist – 26.10.2017

While the first quarter of 2016 proved to be the strongest quarter ever regarding global demand for gold, it dropped 18 per cent in the first three months of 2017. Over the same period, central banks’ demand for the precious metal decreased even more: gold reserve purchases worldwide declined by roughly 27 per cent. The turnaround occurred in the second quarter of 2017. Combined, central banks bought a total of 94.5 tons of gold, making for an increase of 22 per cent over the same period last year. However, this increase was not homogeneous: taking the lead, the Russian central bank upped its gold reserves to reach a level of 17 per cent of total reserves at the end of the quarter. If the current hunger for gold does not ease significantly, Russia will have added around 200 tons to its already enormous gold reserves by the end of the year. Also in the second quarter of 2017, Turkey purchased gold reserves for the very first time since 1980. Turkey's motivation to increase its gold reserves is likely to match those of the gold-purchasing giants China and Russia in an effort to become less dependent on global currency fluctuations in general and on the US dollar in particular. The Chinese central bank has not significantly increased its gold reserves since October 2016, but this is probably due to the fact that the 1,842 tons of Chinese gold reserves represent nothing less than a world record. Even Russia, which raised its gold reserves by around 200 tons in 2015 and 2016, respectively, still has a long way to go to match that. Incidentally, Germany was the only country to sell some of its gold reserves of over 1,710 tons in the second quarter of 2017, more precisely: 3.8 tons. However, this does not in any way imply a strategic rethinking of the Bundesbank, the German central bank, regarding its reserve policy. Rather, it is an effect of its ongoing coin-minting programme.

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