Central banks & gold

The Turkish central bank delivered a bit of negative news in April, selling 81 tonnes of gold from its official reserves, taking its total to 49 tonnes. The World Gold Council (WGC) said that this brought about “the first net decrease in reported gold holdings” by global central banks for more than a year. Such a large sale by a central bank sent shudders through gold holders who can recall 1999, when the Swiss National Bank (SNB) announced in June that it was going to sell half of its 2,590 tonnes of gold as they “were no longer required for monetary purposes” said Philipp Hildebrand, a member of the SNB’s governing board. The central banks of Argentina, Austria, Australia, Belgium, Canada, Luxembourg, the Czech Republic and India had already sold gold. The SNB announcement helped push the Dollar price of gold down to just above $250/ounce.

But gold holders need not fear a repeat of 1999. Gold appears to be back in favour for official reserves; last year saw central banks buy a record amount of gold. Turkey’s central bank was the official sector’s biggest gold buyer, snapping up 148 tonnes. Turkey’s March and April sales this year, 96 tonnes in total, are more likely to have been done to meet local demand for gold, seen by many Turks as a way of protecting their savings against a collapse in Turkey’s fiat currency, the Lira, which has slumped by 60% against the Dollar in the past two years. Turkey suspended gold imports in February as its trade gap widened. The re-elected President Recep Tayyip Erdoğan has overseen policies of relatively low interest rates and emergency boosts to wages, in the face of inflation running at above 40%/year.