Last year, central banks were buying gold in bulk. They keep 13% of their foreign exchange reserves in gold
09. 03. 2022
Beginning and advanced gold investors must be interested in what happened to the price of gold in 2021 and how the fundamentals laid last year will affect the price of the precious metal this year. As usual, the rises and falls in the gold price last year were caused by several important factors. These were mainly concerns about record inflation and rising debt.
Though, gold purchases by central banks, which have been expanding their gold reserves for several years, have also had a significant impact. It can be assumed that they are predicting the financial crisis, and with the help of a universal currency and store of value they want to defend themselves against it. Their net purchases last year were 13.7 million troy ounces, which equals to approximately 426 tonnes. By contrast, in 2020, they purchased only 9 million troy ounces. It means that last year, they strengthened their purchases significantly.
Central banks bought about 70% of the gold purchased in the first half of the year. In the last quarter, purchases decreased and their volume was the lowest since 2010. Given the escalated geopolitical conditions, MKS Pamp Group expects a renewed increase in purchases on the part of central banks and the first quarter of this year will show whether banks are using gold primarily as a defence against inflation.
Strong purchases on the part of India and Thailand. Brazil broke its own record
Significant buyers included India, Thailand and Brazil. The first named country expanded its gold reserves by around 78 tonnes of gold, the largest increase since 2009. But an even bigger buyer was Thailand, which bought 90 tonnes of the yellow metal last year, and its gold reserves rose by 60%. In addition, Brazil also significantly expanded its reserves for the first time since November 2012, by 62.5 tonnes. Hungary similarly expanded its reserves, Uzbekistan bought half as much gold and Kazakhstan expanded its reserves by 15 tonnes, Singapore also bought more, and Ireland expanded its reserves for the first time since 2008.
Last year, banks were also selling
In addition to purchases, 2021 was also marked by sales. Larger sales occurred when six banks reduced their gold reserves. The Philippines disposed of 9% of its reserves and Venezuela, reeling from the financial crisis, sold about 87 tonnes of the yellow metal. The Kyrgyz Republic, Sri Lanka, Germany and the United Arab Emirates have also followed this trend. However, their sales were much lower than the purchases of the countries mentioned above. According to the MKS Pamp Group, these gold reserves are likely to be converted into gold coins which will be issued in the coming months and the gold reserves will be sold to the citizens in the form of commemorative coins.
Central banks held 35.5 thousand tonnes of gold at the end of 2021, which is approximately 13% of their total foreign exchange reserves.
In uncertain times, investors (both public and private) resort to more conservative assets. If you want to avoid inflation and economic crisis, you can start investing in gold even with smaller regular amounts.