Odd isn’t how the world’s biggest gold bugs in 2018 weren’t the mad rightwing survivalists, Arabs, mysterious billionaires from China or India or hard money nuts or cryptocurrency maniacs.
No, it was good old boring sedate central bankers who proved to be the gold bugs of the year in 2018 – especially from Russian, India and China and their buying spree more than offset a sharp slide in demand from investors until the last month or so of the year.
The trend has been emerging in each report from the World Gold Council (WGC) and the 4th and final report on gold demand trends for 2018, released on Thursday made it very clear that without the buying from central banks last year, gold prices would have slumped badly.
In fact, the WGC report confirmed that central bank buying of gold reached its highest levels for almost half a century last year as Russia, Turkey, and Kazakhstan boosted purchases to shift their reserves away from the US dollar.
Central banks bought a net $US27 billion worth of gold, driven by Russia, whose net purchases were the highest on record, according to the World Gold Council 4th quarter report.
Central bank purchases last year amounted to 651.5 tonnes, an increase of 74% on the previous year and the highest since 1971 when President Richard Nixon suspended the US dollar convertibility into gold (it was abandoned completely in 1976).
The buying reflects continued efforts by emerging market central banks to diversify their large holdings of dollar reserves in the face of rising global trade tensions such as Donald Trump’s trade wars with China Mexico, Canada, and the EU.
Russia bought 274.3 tonnes of gold last year, its biggest net purchase on record, funded by the sale of its holdings of US Treasuries, according to the WGC.
“Russia, which is “de-dollarising” its reserves, bought, 274.3t in 2018, funded by the almost total sale of its US Treasuries portfolio. This is the highest level of annual net purchases on record and the fourth consecutive year of +200t purchases. Russia’s gold reserves have increased for 13 consecutive years, growing by 1,726.2t over the period to total 2,113 at the end of the 2018,” The WGC reported..
Net sellers included the central banks of Australia, Germany, Sri Lanka, Indonesia and Ukraine, which sold a combined 15.6 tonnes.
The majority of buying by Russia’s central bank has been from domestic gold production, according to analysts, which allows it to bypass the dollar completely.
Last year some European central banks also entered the market, with Hungary increasing its gold reserves tenfold in October, to 31.5 tonnes, the highest level in nearly 30 years.
Poland also bought 12 tonnes last October.
The Central Bank of Turkey increased gold reserves by 51.5 t in 2018. The WGC said “This is the second consecutive year of net purchases, 40% lower than the 85.9 t it bought in 2017, when it re-entered the market after a nearly 25 year absence.
“This y-o-y decline was exacerbated by a 16t reduction in gold reserves in November. Since May 2017 Turkish gold reserves have increased by 137.4 t.3
“Kazakhstan’s gold reserves rose 50.6t in 2018, to 350.4t. 2018 marks the eighth consecutive annual increase. On a monthly basis, gold reserves have risen for 75 consecutive months, with net purchases totalling an impressive 246.4t over that period.
And having been dormant since October 2016, China announced that its gold reserves had increased by just under 10t in December, to 1,852.2t.
Indian net purchases were 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 200 tonnes from the IMF in 2009.
Overall the WGC said demand for g last year reached 4,345.1t, up from 4,159.9t in 2017 and in line with the five-year average of 4,347.5t.
The central bank splurge “ rove growth” in 2018, the WGC said and helped offset weak inflows into investment products which improved towards the end of the year.
“Demand was bumped up in Q4 by 112.4t of ETF inflows, but annual inflows into these products (of 68.9t) were 67% lower than 2017,” the Council said.
“Investment in bars and coins accelerated in the second half of the year, up 4% to 1,090.2t in 2018. Full year jewellery demand was steady at 2,200t.
“Gold used in technology climbed marginally to 334.6t in 2018, although growth ran out of steam in Q4.
“Annual gold supply firmed slightly to 4,490.2t, with mine production inching up to a new high of 3,364.9t,” The WGC said.
