Central banks' gold reserves swung to an annual gain in January, World Gold Council says

Bullion purchases were up 16% on a monthly basis, with Turkey's central bank the biggest buyer after it added 23.3 tonnes

Gold, which pays no interest, tends to benefit when interest rates are low as it reduces the opportunity cost of holding bullion. AFP

Gold purchases by central banks swung to an annual gain in January, collectively adding 31 tonnes of the key commodity to global reserves, the World Gold Council has said.

Bullion buying was up 16 per cent on a monthly basis and was “comfortably” within the 20-tonne to 60-tonne range of reported purchases that have been in place over the past 10 consecutive months of net buying, the WGC said in its monthly update on Thursday.

That resulted in a reversal of the performance in January 2022, in which central banks lost 12 tonnes of gold.

Only five central banks bought gold in January, with Turkey being the biggest buyer, adding 23.3 tonnes to its reserves to put it at 565 tonnes, the report said.

The People's Bank of China, the regulator in the world's second-biggest economy, bought 14.9 tonnes during the month, adding to an aggregate purchase of 62.2 tonnes in November and December to take its gold reserves to 2,025 tonnes, which is about 3.7 per cent of its total reserves.

The National Bank of Kazakhstan bought 3.9 tonnes of gold in January, taking its reserves to 356 tonnes. The European Central Bank purchased 1.9 tonnes, while Malta added a modest 0.1 tonnes. Uzbekistan, on the other hand, offloaded 11.5 tonnes of gold during the month.

“Focus on this sector of the gold market has been intense in recent months, owing to the record level of buying from central banks in 2022,” Krishan Gopaul, a senior analyst at the WGC, wrote in the report.

Annual central bank demand for gold more than doubled to 1,136 tonnes last year — its biggest yearly increase since 1967 — from 450 tonnes the year before, amid geopolitical uncertainty and high inflation, the council said in its annual report in January.

Gold, which pays no interest, tends to benefit when interest rates are low as it reduces the opportunity cost of holding bullion.

Traditionally seen as a hedge against inflation and economic turmoil, gold prices have fallen more than 8 per cent since exceeding the key $2,000-per-ounce level in March 2022, as rapid US rate rises diminished the non-yielding metal’s appeal.

The Federal Reserve raised interest rates last month — the eighth time since 2022 — by 25 basis points, while indicating that more increases were to come. Its next meeting is scheduled from March 21-22.

The spot price of gold was down 0.1 per cent at $1,835.8 per ounce at 5pm UAE time on Thursday, putting it on track to snap a three-day winning streak after hitting a one-week high on Wednesday, dragged by a stronger dollar and the spectre of more interest rate rises.

The WGC is cautiously optimistic on its outlook for gold. In its annual Gold Demand Trends report in January, it said that it sees “little reason to doubt that central banks will remain positive towards gold and continue to be net purchasers in 2023".

“However, by how much is difficult to call, as evidenced by our expectations at the start of 2022. But it is also reasonable to believe that central bank demand in 2023 may struggle to reach the level it did last year,” it said.

The Fed remains the biggest holder of gold, with 8,133.5 tonnes, or 68.1 per cent of its total reserves, according to the latest WGC data.

The world's biggest economy is followed by Germany (3,355.1 tonnes), the International Monetary Fund (2,814 tonnes), Italy (2,451.8 tonnes) and France (2,436.8 tonnes). Rounding off the top 10 are Russia, China, Switzerland, Japan and India.

The reserves figures are as of January, except for the IMF and Switzerland, which are as of December.