Over the last several years, we’ve seen strong central bank gold-buying. The surge in gold purchases has primarily been driven by a handful of consistent players. But over the last several months, we’ve seen several new countries enter the market.
The most recent is Ireland.
The Central Bank of Ireland added two tons of gold to its reserves over the last few months. This was the first gold purchase by the Irish bank since 2009.
Central bank officials wouldn’t comment on the gold purchase, saying only that gold transactions “are commercially sensitive and no further comment can be made at this time.” But speculation is that the Central Bank of Ireland is upping its gold reserves due to inflation worries. Gabriel Makhlouf serves as the bank’s governor. Last month, he said he was “worried” about rising inflation.
I am very, very conscious that inflation today is impacting on households across the country. It’s not so much a question of how long will this go on before I start to worry. It’s more that if I see evidence that the blockages are not being fixed, or that different things aren’t happening, then I will start to worry. But I am worried today.”
The US isn’t the only country facing inflationary pressure. Euro-area consumer prices were up 4.9% on an annual basis in November. In Ireland, inflation hit 5.1% in October — the highest rate since 2007.
Ireland joins Singapore as a new entrant into the gold market. The Monetary Authority of Singapore (MAS) bought 26.3 tons of gold in May and June, according to its most recent International Reserves and Foreign Currency Liquidity report. It was the first expansion of the country’s gold reserves since the year 2000.
Thailand and Brazil made big gold purchases earlier this year. The Philippines and Mongolia bought smaller amounts. These new faces join a list of countries that have been consistently buying gold, including Kazakhstan, India, Turkey (despite some recent sales), and Uzbekistan.
Poland also recently announced it would further expand its gold reserves by 100 tons in 2022. Bank of Poland President Adam Glapiński said holding gold is a matter of financial security and stability.
Gold will retain its value even when someone cuts off the power to the global financial system, destroying traditional assets based on electronic accounting records. Of course, we do not assume that this will happen. But as the saying goes – forewarned is always insured. And the central bank is required to be prepared for even the most unfavorable circumstances. That is why we see a special place for gold in our foreign exchange management process.”
Net gold buying by central banks globally reached 393 tons at the end of Q3. Central banks have already bought more gold this year than they did in the entirety of 2020 (255 tons) with one quarter left to go. The World Gold Council says net gold purchases are “poised to reach a significant total in 2021.”
An FXStreet report noted that “heavy gold accumulation by central banks points to an ongoing shift away from the US Federal Reserve Note ‘dollar’ as the global reserve currency of choice and points to the ongoing shift in global economic dynamics.”
A World Gold Council survey also found that there is deteriorating faith in the US dollar and a continuing trend toward de-dollarization.
Respondents continue to foresee long-term structural changes in the international monetary system, continuing a trend indicated in last year’s survey. Views toward the US dollar trended downward, with half of respondents saying the greenback will fall below its current proportion. Central banks continue to think that the Chinese renminbi’s proportion will increase, with 88% saying that it will grow beyond current levels.”
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