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Central Bank Demand For Gold Continues to Climb

13 Aug 2018 - Central Banks & Bullion

Earlier this week the World Gold Council released its estimates of third quarter demand for gold. Included in these figures were the net central bank purchase estimates.

The following is a look at central bank demand for gold from 2004 to 2016. The 2014 figure is an estimate based on the first three quarters of 2014 and the 2015/2016 numbers are projected demand figures.

The figure has some fascinating trends.

In the build-up to and during the global real estate boom and bust (2004 to 2007) central banks were net sellers of gold, in surprisingly large quantities.

Once banks started expanding their balance sheets by at least four-fold – central bankers quickly became net purchasers of gold.

The flip from being net sellers to purchasers was large.

In 2005, central banks sold off 664 tons of gold. By 2009, that year-on-year net change had evaporated to 34 tons.

After being net sellers for many years, central banks finally decided to be net purchasers, adding to their gold holdings by 77 tons in 2010. The 2010 shift was only the beginning.

In 2011, net central bank holdings jumped to 457 tons.

In 2012, central banks added another 544 tons.

In 2013, the net purchases cooled off a little, dropping to a still very hot 369 tons.

In 2014, central banks are likely to have added around 480 tons to their holdings (based on the first three quarters).

Based on the recent trend and projected economic indicators, central banks will add 552 tons in 2015 and 640 tons in 2016.

Besides having real assets to cover their enormous balance sheet expansions, why else are central banks suddenly becoming such enormous purchasers?

Another factor behind the expansion is geopolitical uncertainty.

The geopolitical uncertainty argument is readily apparent when looking at where third quarter 2014 demand stemmed from.

As shown, the largest central bank net purchasers – Russia, Kazakhstan, and others – are countries with increased geopolitical uncertainty.

Overall, the demand for gold from central bankers is likely to stay strong for at least the next couple of years.

Behind the increased demand is the central bank need to have a real asset behind balance sheet expansion and increased geopolitical uncertainty.

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