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Poland makes biggest gold purchase for 20 years

Warsaw’s central bank has made its biggest gold purchase since 1998, taking advantage of the metal’s low price and safe-haven status

The National Bank of Poland (NBP) has made a substantial purchase of gold, increasing its reserves by approximately 9 metric tonnes this summer. The purchase marks the eastern European state’s biggest for two decades and is one of the largest ever by any EU member state.

Prior to this purchase the World Gold Council listed Poland’s reserves as being 103 tonnes, most of which are alleged to be held in London by the Bank of England.

Buying gold at this time is seen as prudent as the price remains low. Summer often sees low gold prices, which this year have continued into October. This morning gold was priced at $1,193, giving Poland’s new gold an approximate market value of $345.2 million.

Poland’s gold purchase takes its holdings up to their highest level since 1983 and mirrors recent gold purchases by Russia and India. Central bank holdings globally are now thought to be at their highest in two decades. China is also alleged to have significantly increased its gold reserves while Hungary and Germany have both repatriated large amounts of their gold.

The increase in Poland's gold reserves

The increase in Poland’s gold reserves

The low price, twinned with the prospect of asset price increases elsewhere could have prompted the move. Marcin Mazurek, a senior economist at mBank SA, told Bloomberg: “The NBP reserve management policy is based on diversification. Perhaps the basic criterion is the low price of the gold, combined with the expectation for higher global inflation.”

This week the euro weakened as Italy’s populist government pushed ahead with its controversial budget, funded by widening its spending deficit.

As well as protecting against the inflation of the paper currencies that make up the majority of the NBP’s reserves, gold could also have other benefits, notably providing profit, liquidity and stability: “Central banks have three main objectives when they are thinking about reserve assets: to keep their assets safe, to keep their assets liquid and to generate returns,” Natalie Dempster, managing director of central banks and public policy at the World Gold Council, told Bloomberg. “Gold can help to meet all three policy objectives.”

Such a prominent gold buy was also seen as good for markets: “A broader and more representative base of central bank buyers can only be good news,” Matthew Turner, a strategist at Macquarie Group Ltd told the newswire.

Image top: Warsaw’s Old Town