Central Banks have become big players in the gold market and now control 10% of the total market demand. Now, this wasn’t always the case. Just ten years ago, the Central Banks were the main suppliers via their policy of dumping gold into the market. However, the Central Bank's strategy to sell gold into the market to depress the price had quite the opposite effect.
For example, Central Banks dumped over 2,600 metric tons of gold into the market between 2003 and 2007, according to data from the World Gold Council. So, what kind of impact on price did the sale of 84 million oz of Central Bank gold have on the market during that period? The price of gold nearly doubled from $363 in 2003 to $695 in 2007.
The last year Central Banks sold gold into the market was in 2009. However, it was only 34 metric tons. Since 2010, Central Banks have been net purchases of gold. Between 2010 and 2017, Central Banks purchased nearly 3,700 metric tons (mt) or a stunning 119 million oz of gold.
And Central Bank gold purchases don’t seem to be slowing. The World Gold Council (WGC) just released yesterday in their Market Update: Central Bank buying activity, that official gold purchases are now 10% of the total market.
Using data from the WGC Demand Trends, Central Banks purchased 193 mt of gold in the first half of 2018, representing 10% of the total global demand:
The majority of the official gold purchases during the 1H of 2018 came from Russia, Turkey, and Kazakhstan. Now, what a difference from just a little more than a decade ago when Central Banks were selling rather than buying gold.
In the first half of 2007, official gold sales equaled 217 mt and represented 14% of the total market:
Now, with the recent turmoil in Turkey impacting its Lira, some are concerned that if the country decides to start selling its gold to stabilize its currency, then that could be negative on the gold price. Well, I highly doubt it. If the dumping of 2,600 mt of gold into the market between 2003 and 2007 didn’t impact the gold price negatively (actually it nearly doubled), then why would it do so today?
If Central Banks are smart, they will hold onto their gold reserves as they will need it during the coming financial meltdown. We must remember, DEBTS like U.S. Treasuries, aren’t ASSETS.
About the Author:
Independent researcher Steve St. Angelo started to invest in precious metals in 2002. In 2008, he began researching areas of the gold and silver market that the majority of the precious metal analyst community has left unexplored. These areas include how energy and the falling EROI – Energy Returned On Invested – stand to impact the mining industry, precious metals, paper assets, and the overall economy.