Central banks keep buying

The central banks of Kazakhstan and Turkey dominated the declared buying. In 2022, Turkey was the largest official gold buyer in 2022; it bought 23 tonnes in January, making its total gold reserves 565 tonnes. The other large named buyers in 2022 were Uzbekistan, India, Qatar and Egypt – all nations which abstained on the vote to expel Russia from the United Nations Human Rights Council in April last year. The biggest (undeclared) buyers were probably Russia and China. China’s official gold holdings now stand at 2,025 tonnes, although the real figure is believed to be much higher. Politically-inspired buying of gold was undoubtedly a characteristic of the gold market in 2022.

At the same time transfers of gold to countries perceived to be more stable went up considerably in 2022. According to Swiss customs data, for example, transfers of gold from Kazakhstan to Switzerland went from zero in the first quarter of 2022 to almost three tonnes in the third quarter.

Consumer demand was also buoyant last year, particularly in Russia. The WGC says that demand for gold bars and coins last year grew faster in Russia than in any other country, rising to nearly five times the level of the previous year. Russia’s finance minister, Anton Siluanov, said in March last year that the Dollar was “volatile” and exposed to “various risks”, whereas gold “will be a great alternative to dollars amid an unstable geopolitical situation”. Russia accounts for almost 10% of global gold production but its gold imports have been restricted by Western-backed sanctions. It has turned to China instead – according to Chinese customs data, Russian gold exports went up by more than 60% in 2022.

While gold purchases by central banks remains strong, diversification away from the US Dollar in their foreign exchange reserves continues. According to the International Monetary Fund’s (IMF) “Currency Composition of Foreign Exchange Reserves data” the Dollar’s proportion of foreign exchange reserves has slipped from 71% at the start of the century to about 60% in the third quarter of 2022.

Clearly a shift in the composition of central bank reserves is one subterranean consequence of the weaponization of finance brought about by Russia’s invasion of Ukraine. Roughly half of Russia’s foreign exchange reserves – some $350 billion – have been frozen under the sanctions. The value of the total assets frozen is thought to be as much as $1.4 trillion.

Calls by Poland and the Baltic states to seize these assets to pay for Ukraine’s post-war reconstruction have been rejected by Switzerland (which has frozen more than $8 billion of Russian assets) as illegal and would be likely to provoke Russian retaliation. Freezing the Russian central bank’s assets “feels to many like another nail in the coffin of globalisation” says an Invesco analyst. Central banks are creatures that change direction slowly and generally only under pressure; their renewed interest in gold rather than Dollars reflects fear that, if they offend the US, their Dollar reserves might become as untouchable as Russia’s.