In 2022, central banks actively bought gold. But who buys gold and why?
Introduction: Central Banks Purchased Gold in 2022
In 2022, central banks actively bought gold.. The main idea of the article is to understand who buys gold and why.
In the first chapter, we will show that central banks are net buyers of gold.
In the second chapter, we will show the largest net purchases of gold in 2022.
In the third chapter, we will show that the main reason for gold purchases is a sharp increase in demand.
1. Central Banks are Net Buyers of Gold
In the last decade, central banks have become net buyers of gold in the world. In 2022, central banks added 387 tons of gold (22.4$US Billions) to their reserves. In 2022, banks purchased 21 tons (1.2$ US Billions) more gold than in 2021. However, in the first 2 months of 2023, banks have already added 158 tons (9 US$ Billions) of gold to their reserves, which is 40% of purchases in 2022.
Banks bought the largest amount of gold in 2015 - 913.4 tons of gold (47$US Billions) and in 2019 - 707.7 tons of gold (36$US Billions).
In 2022, gold reserves of central banks are the highest in the last 30 years.
2. Main Gold Buyers in 2022
The biggest buyers of gold in 2022 are Turkey, China, Egypt, Qatar, Iraq and Uzbekistan. Together, they purchased 90% of all declared gold purchases by central banks in 2022.
2a. Turkey is the Biggest Buyer of Gold Amid Soaring Inflation
Central Bank of the Republic of Türkiye is the biggest gold buyer in 2022. The Central Bank of the Republic of Türkiye added 160 tons (9.2$US Billions) of gold to its reserves on the back of the country's rapid growth in inflation and the diversification of its reserves. Since the beginning of the year, inflation has increased from 49% to 86%, reaching its historical maximum in October. But in December 2022 inflation decreased to 64%. Also, the collapse of the Turkish lira currency prompts the central bank to attract gold to its own reserves.
In December 2021, the Turkish central bank announced to support conversion of gold deposits to lira. The bank decided to provide incentives to those who convert their gold deposits into term deposit accounts in Turkish lira. In the end of December 2021, Erdogan announced a willingness for depositors to convert foreign currency deposits into liras, and the treasury and the Turkish central bank would reimburse losses incurred due to the fall of the lira during the deposit period.
February 8, 2022 Turkey's Treasury and Finance Minister Nureddin Nebati announced the creation of a new system for gold owners to convert gold into liras. "With this package, we will put under-the-mattress gold, which is estimated at around 5000 tons, into the banking system. It is equivalent to about $250-$350 billion. A certain part of that amount will support the Central Bank's foreign currency needs," he said. This program should encourage people to keep their savings in lira with guarantees against exchange rate fluctuations.
To date, Turkey has 587.3 tons of gold (33.9$US Billions) in its reserves, which is 30% of the total reserves of the Central Bank of the Republic of Türkiye.
2b. China Continues to Increase its Gold Reserves
China was the second largest buyer of gold in the world in 2022. The People’s Bank of China added 62.2 tons (3.6 US$ Billions) of gold to its reserves. In November 2022, China added purchased 32 tons (1.85 US$ Billions) of gold and in December 2022, China added 30.2 tons (1.7 US$ Billions) of gold to its reserves. Over the past 10 years, China has added 956 tons (55.27 US$ Billions) of gold to its reserves, making it one of the largest buyers of gold in the world.
The People's Bank of China does not comment on the reasons for the purchases. It is worth noting that The People's Bank of China does not often publish its reports, and the export of Chinese gold abroad is prohibited. The last time The People’s Bank of China reported on gold purchases was in September 2019.
It is also worth noting that China continues to actively buy gold in 2023. In 2 months of 2023, China added 40 tons of gold to its reserves, which may be related to the desire of the BRICS countries to create their own currency for settlements. China's total gold reserves are 2050 tons (118.5 US$ Billions), which is 3.6% of China's total reserves.
2c. Egypt Sharply Added Gold to its Reserves
In 2022, the Central Bank of Egypt dramatically increased its gold reserves by 44.4 tons (2.3 US$ Billions), which is 35% of Egypt's total reserves to date.
Egypt was the largest buyer of gold in the first quarter of 2022. In 2022, the national currency Egyptian pound lost 15% of its value against the US dollar. Inflation also increased sharply in Egypt by 10%, reaching 16%, which prompted Egypt to buy gold for its reserves.
For the past 5 years, Egypt has been adding gold to its reserves from local mines, but in small quantities. In April 2022, an emergency resolution from El Sisi on Egypt's gold was published to increase domestic gold production in the long term.
At the moment, Egypt's gold reserves are 125.7 tons (6.4 US$ Billions), which is 23.2% of Egypt's total reserves. Egypt has the largest gold reserves in its region.
2d. Qatar is One of the Leader of Gold Buying in Middle East
The report of the World Gold Council said that the Middle East was one of the largest buyers of gold regionally. Qatar bought the most gold in its region. Egypt (2.6 US$ Billions), Qatar (2 US$ Billions), Iraq (1.9 US$ Billions), the United Arab Emirates (1.4 US$ Billions) and Oman (0.1 US$ Billions) significantly boosted their gold reserves.
In 2022, Qatar was the 4th largest buyer of gold, adding 35 tons (2 US$ Billions) of gold to its reserves. Qatar bought the most gold in the 3rd quarter of 2022, 31 tons of gold (1.8 US$ Billions).
Qatar's reserves are at their historical maximum and amount to 91.8 tons of gold, which is 11% of all Qatar's reserves.
2e. Iraq Bought Gold for Stabilization of its Currency
In June 2022, Iraq purchased 33.9 tons of gold (1.9 US$ Billions) in its reserves. In a statement from the central bank on March 22, 2022, it is said that Iraq purchased gold in order to stabilize the exchange rate of the Iraqi dinar against other currencies.
According to data from the International Monetary Fund, this purchase of gold is the first since September 2018, when Iraq purchased 6.5 tons of gold (0.3 US$ Billions).
The World Gold Council confirmed the purchase of gold by Iraq's central bank and now has 130.3 tons of gold reserves (6.6 US$ Billions), making Iraq the 30th largest holder of gold reserves in the world. Gold reserves make up 9.4% of all Iraqi reserves.
2f. Uzbekistan
In 2022, Uzbekistan added 33.9 tons of gold (1.9 US$ Billions) to its reserves. After selling 24.6 tons of gold (1.4 US$ Billions) in the first quarter of 2022, Uzbekistan bought 26.2 tons of gold (1.5 US$ Billions) in the second quarter of 2022 and 26.1 (1.5 US$ Billions) tons of gold in the third quarter of 2022.
3 years ago, Uzbekistan announced plans to diversify its reserves away from gold bullion, but the bank was forced to change its course, according to Deputy Governor of the Central Bank of Uzbekistan Behzod Khamrayev. In an interview, he said, "We thought about investing in Treasuries, but then the market itself didn't allow us to do it." He attributes the change in course to the sharp rise in gold prices in 2020 during the coronavirus pandemic. "Prices were really good and we continued to sell gold," he said. Khamrayev calls gold purchases the right moment. He says "For us, there are two factors: the current price and the future price." "Is the price rising or has it peaked and is going down? This is the moment we are looking for. If the price will rise, it is better to wait with sales," said Khamraev.
Today, Uzbekistan has 390 tons of gold (19.9 US$ Billions) in its reserves, which makes it the 15th largest owner of gold in the world.
3. Central Banks Play a Significant Role in Global Gold Demand
According to the report of the World Gold Council, in 2022 the demand for gold by central banks amounted to 1136 tons, which is a record figure in history. Central bank gold demand has grown by more than 300% compared to 2021. The World Gold Council indicates that the Geopolitical uncertainty and high inflation were highlighted as key reasons for holding gold. But added that data "includes substantial estimate for unreported purchases" due to the fact that many institutes do not publish their reports regularly, for example China or Russia.
If we consider purchases of gold, a clear trend can be seen that most purchases are made by developing countries. In the third quarter, the biggest buyers of gold were Turkey, Uzbekistan and Qatar, which bought 15 tons of gold, its largest purchase since 1967. Mozambique, the Philippines and Mongolia are also on the shopping list. Kazakhstan was the biggest seller of gold in 2022. In its statement, the Central Bank of Kazakhstan said in August that sales may increase, but everything will depend on the market situation. Also Germany registered net sales of 4t as part of its ongoing coin-minting program.
The data confirms previous surveys in the gold demand report, when a quarter of respondents said they were ready to add gold to their reserves.
The graph above shows that the share of central banks' gold demand has been steadily increasing since Q4 2021. Currently, the share of central banks has increased from 3% in the 4th quarter to 34% in the 3rd quarter of 2022 and a bit decreased to 31% in the 4th quarter of 2022. Banks and other financial institutions are actively buying gold against the backdrop of an unstable geopolitical situation, a sharp increase in inflation and unstable markets.
In 2022, the share of central banks in gold purchases was 24%, which is quite a high indicator and proves that central banks are an important player in the gold market.
Conclusion
In 2022, central banks continue the trend of remaining net buyers of gold and replenishing their gold reserves. However, in 2022, we see that the main buyers of gold are developing countries, which means that they are trying to diversify their assets against the background of an unstable situation. Banks are important players in the global gold market, although not all of them declare their purchases for certain reasons. We can see that banks are already actively continuing to buy gold in 2023.
Date= 28th October 2023, Gold price – 2003.30$, Silver price – 25.34$, Platinum price – 1095.20$, Oil price – 76.77$