After posting the highest level of net gold purchases on record in 2022, central banks picked up in 2023 right where they left off.
Central banks around the world added another 77 net tonnes to their gold reserves in January. according to the latest data compiled by the World Gold Council.
This was a 192% month-on-month increase from December and above the 20-60 ton buying range we have seen over the past 10 consecutive months of net buying.
A recent report of a gold purchase of 45 tonnes by Singapore in January raised the figures from the 31 tonnes initially reported.
The Central Bank of Turkey was the biggest buyer in 2022 and continued to add gold to its reserves with another purchase of 23 tonnes in January. Turkey now has 565 tons of gold.
The country has been battling rampant inflation. Price inflation accelerated to 85% last year and stood at 64% in December. The Turkish lira depreciated by almost 30% last year. Meanwhile, the price of gold in lira rose 40% year-on-year, according to Bloomberg.
China reported a further increase of 14.9 tonnes in its gold reserves on top of the 62 tonnes reported between November and December 2022.
China’s central bank hoarded 1,448 tonnes of gold between 2002 and 2019, then suddenly went silent until it resumed reporting in November 2022. Many speculate that the Chinese continued to add gold to their holdings off the books during those silent years.
There has always been speculation that China has much more gold than it officially discloses. As Jim Rickards pointed out in Mises Daily in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration of Foreign Exchange (SAFE).
Last year, there were large unreported increases in central bank gold reserves. Central banks that often do not report purchases include China and Russia. Many analysts believe that China is the mystery buyer stockpiling gold to minimize exposure to the dollar.
The European Central Bank reported an increase of almost 2 tonnes in its gold reserves in January. According to the WGC, this was related to Croatia’s accession to the Eurozone.
The National Bank of Kazakhstan increased its gold reserves by a modest 3.9 tonnes in January after selling more than 30 tonnes in November and December.
The only outstanding seller in January was Uzbekistan with a decrease of 12 tonnes in gold reserves.
It is not unusual for banks that buy domestic production, such as Uzbekistan and Kazakhstan, to switch between buying and selling.
The World Gold Council predicts that central banks will continue to buy gold until 2023, but it is not unreasonable to expect that the purchase rate will not match the record level of 2022.
Looking ahead, we see little reason to doubt that central banks will remain bullish on gold and remain net buyers in 2023. However, how much is hard to call, as evidenced by our expectations in early 2022. But it is also reasonable to believe that central bank demand in 2023 may struggle to reach the level it did last year.”
The central bank’s total gold purchase in 2022 was 1,136 tonnes. It was the highest level of net purchases recorded since 1950, including since the suspension of the convertibility of the dollar into gold in 1971. It was the thirteenth consecutive year of net purchases of gold by the central bank.
According to the World Gold Council, there are two main factors behind central bank gold purchases: its performance in times of crisis and its role as a long-term store of value.
It is not surprising then that in a year marked by geopolitical uncertainty and rampant inflation, central banks choose to continue adding gold to their coffers and at an accelerated pace.”
The World Gold Council’s global head of research, Juan Carlos Artigas, told Kitco News that the large purchases underscore the fact that gold remains an important asset in the global monetary system.
“Even though gold no longer backs coins, it’s still being used. Why? Because it’s a real asset,” he said