Central Banks' Gold-Buying Spree Reaches 50-Year High

Russia, Kazakhstan and Turkey again accounted for a large portion of demand in 2018. But their share fell to 58 % – from 94 % in 2017 – as other central banks chose to significantly increase their gold reserves, reinforcing the importance of gold as a reserve asset.

Notably, European central banks also bought gold last year. Hungary made one of the largest purchases, increasing its gold reserves ten-fold in October, to 31.5t. This is the highest level for nearly 30 years. The central bank cited gold’s role as a hedge against future structural changes in the international financial system, as well as its lack of counterparty or credit risk, as reasons for the purchase. Similarly, Poland was another European central bank which bought last year. Gold reserves rose by 25.7t during 2018, +25% y-o-y. 

Indian net purchases were another notable component of central bank demand in 2018. Monthly purchases began in March and picked up in the second half of the year. In total, gold reserves rose by 40.5t, the highest annual growth since the purchase of 200t from the International Monetary Fund In 2009.5 In its Annual Report 2017-2018 the bank stated: “Diversification of India’s Foreign Currency Assets (FCA) continued during the year with attention being ascribed to risk management, including cyber security risk. The gold portfolio has also been activated.” 

Mongolia announced that it had bought 22t of gold in 2018, in line with its stated target.  This represented a 10% increase on 2017 purchases. One of the drivers of this growth was a five-month “National Gold to the Fund of Treasures” campaign, which encouraged miners and individuals to sell their gold to the central bank.6

In September, the Central Bank of Iraq stated that it had taken advantage of lower gold prices to buy 6.5t. This was the first annual increase since 2014 and took total gold reserves to 96.3t, accounting for 6.7% of total reserves. 

The State Oil Fund of Azerbaijan (SOFAZ) also re-entered the market last year. Gold reserves grew by 14.3t by the end Q3, an increase of nearly 50% from end-2017.7 Having been on the side-lines of the gold market since the end of 2013, this marked a change in policy for the fund. In December 2018, President Ilham Aliyev approved updated investment guidelines that would allow SOFAZ to invest up to 10% of its portfolio in gold. Currently, gold accounts for 4.3% of SOFAZ’s portfolio. 

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