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Gold – Why are Central Banks Buying So Much Gold? Inflation?

Gold - Why are Central Banks Buying So Much Gold? Inflation?

In 2018, global Central Banks bought more gold than they have since 1967, with the Russian Central Bank leading the way as it buys billions of dollars of the precious metal. The amount of gold purchased is the second highest volume in recorded history, this is according to World Gold Council. The most gold bought was when the United States, under President Richard Nixon, made the decision to end the US dollar and its peg to the bullion price in 1971. This resulted in massive purchases of gold by investors in all centers from Tokyo to New York.

The net purchases of Central Banks was 651.5 metric tons in 2018, 74 percent higher then the previous year which was 375 tons purchased. The WGC estimates that Central Banks now hold as much as 34,000 tons of gold but the exact figures are difficult to determine. The bulk of all purchases were carried out by a small group of banks with Russia leading. Note that Russia was a big seller of US Treasury bonds and replaced it with purchases of gold in 2018 – 274.3 tons of gold to be exact.

Remember that stories of the problems that would arise if overseas investors sold US bonds? This selling by Russia seems not to have impact on the US bond market. Also in the buying was the Central Bank of Turkey, which bought 51.5 tons in 2018. Other banks were India, Iraq, Poland and Hungry – all buyers of gold in 2018.

The net sellers – but in small amounts – were the Central Banks of Ukraine, Germany, Australia and Sri Lanka. WGC said that gold demand in 2018 was 4,345.1 tons. Jewelry was the main market for gold purchases while bars and coins contributed to 1,090 tons in 2018.

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