In a third consecutive quarter of net central bank buying, global gold reserves grew by 199.9t in Q2, the highest level of quarterly net purchases since Q2 2019 (227.8t) and 73% above the five-year quarterly average. This brings net buying for H1 to 333.2t, 63% higher than H1 2020, 39% higher than the five-year H1 average, and 29% above the ten-year H1 average.
Having been relatively subdued in the second half of 2020, demand picked up in the first half of 2021, with almost two-thirds concentrated in Q2. Reported gross purchases by the IMF totalled 287.7t over the first six months, with nine central banks accounting for the vast majority of this.1
The largest purchaser during H1 was Thailand, which increased reserves by 90.2t, or 60%. Latest IMF data puts Thai gold reserves at 244.2t, 6% of total reserves, the highest level on record.2 The Central Bank of Thailand Governor, Dr Sethaput Suthiwartnarueput, indicated that gold addresses the key reserve management objectives of security, return, diversification and tail-risk hedging. But Thailand was not alone in increasing reserves both significantly and swiftly. In March, Hungary bought 63t of gold, tripling its gold reserves from 31.5t to 94.5t, citing the pandemic, growing debt levels and inflation as key reasons for its purchase.
Turkey, one of several regularly active central bank over recent quarters, added 13.5t in H1, taking its official sector gold reserves to 408.2t (29% of total reserves). This increase was calculated using the more granular data now being published by the Central Bank of the Republic Turkey, which enables us to better identify the volume of official sector gold, distinct from gold held at the central bank that belongs to non-official sector institutions. Based on this new information we have also revised our Turkish official sector data series going back to 2017.3 More detail on this change to our data can be found here.
Brazil was another notable buyer during H1, adding 53.7t to gold reserves between May and June, the first sizeable increases since November 2012. This takes gold reserves to 121.1t (2% of total reserves), its highest level since November 2000.
Poland added 3.1t during H1, boosting its gold reserves to 231.8t (8% of total reserves). This is the first increase in Polish gold holdings since mid-2019, when the central bank bought a total of 100t between May and July. Poland is one of several Central and Eastern European nations significantly increasing their gold reserves in recent years. Other regular buyers during the first six months were Uzbekistan (25.5t), India (29t), Cambodia (5t), and Mongolia (1.8t).
On top of buying during the quarter, several reports indicate that central banks or official institutions plan to increase their gold holdings in the future. This is broadly in line with the findings of our 2021 Central Bank Survey, which indicated that central banks continue to view gold positively.
In June, the Russian Minister of Finance, Anton Siluanov, announced that 20% of the assets of the National Wealth Fund (NFW – the Russian public pension fund – will be invested in gold. This forms part of Russia’s de-dollarisation policy, and the NFW completed the removal of the dollar from its holdings in July. The move signals that gold remains an important asset for the Russian official sector, despite the Central Bank of Russia having suspended its gold buying programme in March 2020.
In the same month, President Luis Arce of Bolivia submitted a draft bill which would authorise the central bank to purchase domestically produced gold to strengthen its international reserves. Economy Minister Marcelo Montenegro also stated: “The aim is to buy between 2-4 tonnes of gold annually, in such a way that this can be refined and become monetary gold.”
Also in June, President Luis Arce of Bolivia submitted a draft bill to allow the central bank to purchase domestically produced gold to strengthen its international reserves. Economy Minister, Marcelo Montenegro, stated: “The aim is to buy between 2-4 tonnes of gold annually, in such a way that this can be refined and become monetary gold.”
In the same month, President Aleksandar Vucic of Serbia announced that the country plans to increase its gold reserves by two-fifths. The central bank, which currently holds 36.3t, has been set a target gold holding of 50t. No specific timeframe was given as to when the increase might occur, but it will follow the notable purchases of 3.2t in November 2020 and 9t in October 2019, which were made in an effort to improve the country’s financial stability.
Finally, Zambia increased its gold reserves by a fractional 0.1t in Q2. While the absolute volume of buying and level of gold reserves remains small, this is part of a growing trend among various African central banks to buy domestically-mined gold using local currencies. Ghana and Tanzania have both made similar announcements but have yet to report any increases in official gold reserves.
By comparison, the overall level of sales was a fraction of buying. Gross sales totalled 41.5t in H1, with five central banks reducing their gold reserves by a tonne or more. The Philippines saw gold reserves fall by 27.2t, while Russia (6.2t), Germany (3.3t), the UAE (2t), and Kazakhstan (1.9t) also saw gold reserves decline. Recent sales from Russia and Germany appear to be related, at least in part, to their coin-minting programmes. Smaller sales were also seen from the Kyrgyz Republic and Mongolia, amongst others.
Despite much of the recent pick-up in demand being accounted for by buying from Hungary and Thailand, significant interest from a number of emerging market central banks means we maintain a positive outlook on demand for the remainder of the year. While this will likely be offset by some moderate selling, our expectation that global central banks will be overall net purchasers for 2021 remains unchanged going into the second half of the year.
