Amid political uncertainty, US-China trade war, the mid-east crisis, and other global slowdown signs, global central banks turned big buyers in the month of June. Poland turned out to be the biggest buyer last month, with the Polish Central Bank buying 95 tonnes, one of the highest monthly purchase in recent years. China purchased 10.3 tonnes.
The Polish Central Bank bought 95 tonnes of gold in June taking its year-to-date buying to 100 tonnes. Last year it bought 26 tonnes, taking its total gold holdings “for financial security” to 229 tonnes. China’s central bank added almost 85 tonnes in calendar 2019.
Gold is playing a new role in the changing international financial environment. Central banks the world over see the global financial system moving from being unipolar, or dollar dependent, to multipolar, with gold serving as a better component of foreign exchange reserves as a hedge against the greenback.
In a sign that central banks across the globe could be seeing gold as the new dollar, their purchases of the metal amounted to a staggering 15 per cent of gold sold worldwide in 2018.
Many, including the Reserve Bank of India (RBI), are aggressively adding gold to their currency reserves. As a matter of fact, this shift from unipolar to multi polar was attempted by the Euro zone a decade ago, and by China later.
While buying was aggressive in June, it was slow in the month of May. According to data released by the World Gold Council, in May, the Reserve Bank of India added 5.6 tonnes, taking its total gold holding as part of foreign exchange reserves to 618.2 tonnes.
Alistair Hewitt, Director of Market Intelligence at the World Gold Council said today, “Reported net purchases of a tonne or more totalled 35.8 tonnes in May, (which is) 27 per cent lower than the previous month. This brings reported net purchases year-to-date to 247.3 tonnes, which is 73 per cent higher than the same period last year. Several emerging market central banks – including Russia, China, Turkey and Kazakhstan – have dominated buying for a few years now, and this is still the case in 2019 with those banks the four biggest buyers so far.”
RBI has added nearly 18 tonnes in 2019 and had 42 tonnes in 2018. Prior to 2018, RBI’s last purchase of gold for reserves was in 2009 when it bought 200 tonnes from the International Monetary Fund. Globally, 2018 was the year central banks turned most active after five decades, buying 651.5 tonnes. This time they are reflecting concerns about the high share of US Dollar in reserves which was becoming risky. They need to hedge that risk and gold was the preferred asset.