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Central bank gold buying has been a significant factor in the yellow metal’s spectacular run-up to new record highs. But with its recent small correction downward, it’s a good time to look at which central banks are selling — and why.

Gold vs USD, 1-Month Chart

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For one, Thailand has been selling the gold top to help rebalance its reserves. However, the biggest central bank gold seller by far is currently Uzbekistan, and has been for some time. The country has better reasons than most to sell the top and pull in some revenue: Uzbekistan bought a lot of gold when prices were lower, but even more importantly, they’re one of the world’s top 10-12 producers and exporters of gold in the world.

Being a producer helps reduce some of the pressure to hold as much gold as possible as global inflation continues to run hot, conflict in the Middle East drags on, and the ongoing war continues to rage between nearby Russia and Ukraine.

However, Uzbekistan’s major problem with gold is one of overdependence — they don’t have a lot of other revenue sources, are heavily indebted, and have leaned on gold sales to replenish their treasury without any major economic reforms to reduce the degree to which it has to lean on gold exports. If gold crashes, the central bank and government have few solid resources to soften the blow. Thankfully, if you zoom out, gold always trends up as central banks devalue their currencies — but Uzbekistan doesn’t have other tools to work with during gold’s major drawdowns.

Likewise, if there are disruptions around Uzbekistan’s gold mining industry that hamper its discovery, production, or export, the Uzbekistan central bank is left without equally effective measures to prop up the som, its troubled national currency. With gold’s rise, becoming one of the world’s biggest sellers allowed Uzbekistan to prop up the som against the US dollar — but without its stash of gold, the country’s economy and currency would be in a huge heap of trouble.

UZS vs USD as Uzbekistan Sells Gold

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With gold currently raging, there’s also less incentive for the government to push to innovate and fix its more fundamental issues, since it can lean on high gold prices to keep itself afloat and pay back debtors, like the $1 billion that just came due on a 2019 Eurobond. One major reform effort was a new rule allowing anyone to look for gold, in an effort to increase gold production and overall employment. And while it has helped somewhat, making fewer Uzbekis dependent on Russia for jobs, it only increases the country’s broader gold dependence.

Luckily for Uzbekistan, inflation will continue to worsen as central banks and governments scramble (and fail) to contain it, which will push commodities like gold higher. Meanwhile, countries like China continue their massive buying sprees and help prop up bull markets further. That means that Uzbekistan will probably continue to sell and reap the benefits of profit-taking, likely remaining one of the world’s major sellers in the coming months and years.

Without other economic tools, however, it can’t just rely on selling gold as a shortcut to prosperity on the global stage. Then again, if major currencies start to fall due to central bank hubris and out-of-control debt, perhaps gold will soar high enough that an overdependent country like Uzbekistan will have a (literal) golden opportunity to invest heavily into other areas, building itself up from the ashes of the self-destruction of Western fiat currencies.

For now, however, all that glistens in Uzbekistan’s economy is gold.

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