Gold: central banks keep buying despite the price decline

An ounce of gold is trading at around $4,100, more than 25% below its January record, which came close to $5,600. For a saver, the decline is clear. Central banks, however, have not changed course: according to the World Gold Council, they bought a net 39 tonnes in August.

39 tonnes in August, 170 since January

The data was published on October 6 by the World Gold Council, the organization that represents the gold industry. It covers reported net purchases, meaning purchases minus sales. August’s 39 tonnes fall between July’s 23 tonnes and June’s 51 tonnes. Since January, the total has reached 170 tonnes. At the current price, August’s purchases alone amount to roughly $5 billion, according to Journal du Coin’s calculation.

China leads with 20 tonnes, ahead of Uzbekistan and Poland (8 tonnes each), followed by Kazakhstan (7 tonnes). Turkey is a buyer again, with 3 tonnes, after three months of sales. On the other side, Russia sold 6 tonnes in August (56 tonnes since January) and Jordan sold 3.

China carries weight, Poland leads the year

With 20 tonnes out of a net total of 39, China alone accounts for more than half of the month’s net purchases. The People’s Bank of China has been buying without interruption for 22 months. It has added 80 tonnes since January and now holds about 2,387 tonnes. The volume is considerable, but it needs to be put in proportion: gold makes up only 9% of China’s reserves. The contrast is striking with Uzbekistan, where it accounts for 90% of reserves, and Kazakhstan, where the share reaches 79%.

Over the year as a whole, however, first place goes to Poland, with 98 tonnes bought since January. It holds 648, against an official target of 700 tonnes. This is a stated target, not a result: it still needs to acquire 52 tonnes to reach it. Marissa Salim, an analyst at the World Gold Council and author of the note, points out that China is catching up with Poland in the annual ranking. More quietly, the Czech Republic has racked up 42 consecutive months of purchases.

Why buy an asset that is falling

The price decline has an identified cause. A ten-year US Treasury bond now yields more than 5%, a level not seen since 2002. Faced with a bond that pays interest, a metal that pays none loses its appeal for investors. The ounce fell to $4,066 on Wednesday, October 7.

A central bank, Journal du Coin points out, is looking for something other than yield. The article puts forward two arguments. First, gold is nobody’s debt. Second, when kept in a country’s own vaults, it is shielded from asset freezes, such as the one that hit Russia’s reserves in 2022. Do these purchases also reflect a broader desire to change the composition of reserves? The source does not say so, and the question remains open.

The geography of reserves is shifting too. On September 2, the Netherlands announced the transfer of 86 tonnes of gold from New York and Ottawa to London, a market where the metal is traded more easily.

An underlying trend, but a slowing pace

Readings of these figures do not fully converge. According to Marissa Salim, the composition of August’s purchases suggests that central banks are pursuing long-term objectives; month-to-month variations would mainly reflect how purchases are executed and market conditions.

Other factors call for caution. In its September note, the World Gold Council counted 130 tonnes of reported purchases at the end of July, compared with about 160 tonnes at the same point a year earlier: demand is holding up, but at a slower pace. The same document reported that the governor of Uzbekistan’s central bank, one of August’s buyers, is considering sales “at favorable prices.” As for Russia, it has remained a net seller since January. The August picture is therefore one of positive official demand, not of a unanimous movement or a guarantee for the months ahead.

And what about Switzerland?

The source says nothing about the Swiss National Bank or the Swiss gold industry. Yet the question is worth asking for Swiss readers. If central banks keep accumulating gold, and sometimes moving it to the markets where it is traded, what does that mean for Swiss companies active in this market, and for the jobs that depend on it? And what role should gold play in Switzerland’s reserve policy, while other central banks keep buying it? These questions remain open; the August figures do not provide an answer.

The World Gold Council’s next report is expected next month. It will show whether the slowdown observed at the end of July is confirmed, and whether Poland is getting closer to its target. This article does not constitute investment advice.

Source: Journal du Coin, “Or : les banques centrales achètent 39 tonnes en août, la Chine en tête”