Central banks flip to gold sales after record rally

Central banks became net sellers of gold in August for the first time in a year and a half, in the latest indication that demand for the metal is slowing following a record-setting rally. 

Global central banks sold a net 12.3 tonnes of gold over the month, according to estimates published on Wednesday by the World Gold Council, an industry-backed body. The shift came just as the precious metal reached a record high above $2,070 a troy ounce in early August. It has since fallen more than 8 per cent to $1,890 per ounce.

The latest data reflect the pullback of some major buyers as countries free up resources to deal with the coronavirus crisis.

“All central banks around the world are facing a lot of pressure for liquidity,” said Bernard Dahdah, an analyst at Natixis in Paris. “Now is not the time to hoard gold, the hospitals need the money,” he said.

Uzbekistan led the sales, exporting $5.8bn worth of gold in the first eight months of the year, according to government statistics.

Central bank purchases have been a lesser factor in this year’s surge in gold, which has been dominated by record demand for gold-backed exchange traded funds. Global investors have poured more than $60bn into such ETFs so far in 2020. But central banks have still bought between 200 and 300 tonnes, according to the WGC’s estimates — worth about $13bn at the lower end, on current prices.

The sales follow a couple of banner years for purchases, including a record in 2018, when central banks bought 651.5 tonnes of gold — the most since 1971 — as countries including Russia, Turkey and Kazakhstan attempted to move their reserves away from the dollar. Last year, global central banks bought another 650 tonnes.

Russia’s central bank said in March it would stop buying gold starting in April, following some $40bn of purchases over the past five years. China’s central bank, the People’s Bank of China, has also not yet reported any sales in 2020.

Turkey, however, has added to its holdings, becoming the largest buyer with 194 tonnes of purchases so far this year, worth about $12.9bn at the current price. Gold now makes up 49 per cent of its total net reserves, the WGC estimated. 

Higher prices have hit demand for physical bars this year, with sales falling in the traditional gold-buying countries of India and China. In recent weeks, investment outflows and a stronger dollar, which makes gold more expensive in other currencies, have pulled the market down from its peak. 

  

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