In the third quarter of 2022, the world’s leading central banks purchased 399 tons of gold with a total value of about $20 billion, which was a record since 2000, and if we count from January to September, then even since 1967. The 2021 figures are four times the current volume. This was reported in the World Gold Council (WGC), specifying that active demand was also observed from the jewelry industry and buyers of gold bars and coins.
At the same time, the precious metal’s holdings in gold exchange-traded funds (ETFs) declined. According to Bloomberg, this year the price of gold bars was pressured by a sharp increase in US Fed rates, which prompted investors in exchange-traded funds to sell gold as an unprofitable asset. But support for demand for the precious metal came from other buyers, such as retail buyers in Asia and central banks around the world. Among them, for example, are the central banks of Qatar, India, Uzbekistan and Turkey.
But, as the WGC emphasizes, some of the purchases are unregistered, as some countries, including Russia and China, do not regularly publish data on their gold purchases.
“Not all official institutions publicly report their gold holdings or do so with a delay. We cannot rule out the possibility of further unrecorded purchases,” the WGC said in its quarterly report. That is, theoretically, Russia can be among the buyers of gold.
At the same time, in October, Deputy Chairman of the Central Bank Alexey Zabotkin stated that the freezing of a significant part of the country’s gold and foreign exchange reserves makes the acquisition of gold impractical, as it will cause an increase in the money supply and, as a result, inflation. In addition, the share of precious metals in Russian reserves is quite large and amounts to 21.5%. And that’s if we count the blocked 300 billion, which “hung” in the West. Without taking them into account, the share of gold in gold reserves may exceed 40%.
However, experts interviewed by JV doubt that the purchase of gold can lead to an increase in inflation and call the precious metal the best protection for assets against the backdrop of comprehensive sanctions. Therefore, it is difficult to say what the position of the financial authorities is connected with. In addition, according to Bloomberg, gold can still be bought, but without advertising it.
“If you look at who bought gold, these are, first of all, countries that have problems with the United States, that is, Turkey, China, and so on,” he says. Alexey Vyazovsky, Vice President of the Golden Coin House. – The example of Russia, whose gold and foreign exchange reserves were arrested with a click of the mouse, and now they want to confiscate them in general, has become indicative. Only gold can protect assets, if, of course, it is stored on your territory. Because there are examples like Venezuela, which kept its bullion in England. And when this country started having problems with the West, London simply confiscated them. This is a big and important lesson, which also applies to ordinary citizens. Gold is the ultimate liquidity asset. Everything is valued in gold and everything eventually comes to him.
“SP”: – But isn’t gold subject to risks, for example, now its price has noticeably decreased?
– All these calculations are from the evil one. The price of gold has now really dropped noticeably in dollars and rubles. At the February highs, a gram was worth 7,000 rubles, and now it is about 3,000. But at the same time, you need to remember that over the past 20 years, a gram has grown from 500 rubles, so you are in the black anyway. Investments in physical metal are long-term investments, at least three years, because personal income tax is not taken over this period. The price of gold is constantly going up, it’s just that this growth comes with kickbacks. And market participants earn on these kickbacks.
“SP”: – Why do our financial authorities say that it is not advisable to buy gold now?
— This position was announced in response to a request from the gold mining industry to increase purchases of gold in reserves. For many years, the Central Bank bought up more than 200 tons of bars per year from our gold miners. In the “covid” year, he stopped doing this, but in return he gave them permission to trade directly with the West, which previously required a special license, this was done by banks. As a result, more than 600 tons were exported, for the third quarter of 2020, the income from the sale of gold was even higher than from the sale of gas.
But this story ended because the sanctions also affected gold. Europeans and Americans have banned trading in gold with Russian hallmarks, and gold miners are experiencing severe problems. It is impossible to go to the East with sales, they carry something through Dubai, but, of course, they would like to return to the previous scheme of selling to the Bank of Russia. But the financial authorities insist that this causes inflation, although it did not cause any inflation before. It is difficult to see the logic in this, since buying gold into reserves is a good way to protect them. But, apparently, our authorities have other priorities. Personally, I think this is a mistake.
On the other hand, now citizens have begun to buy gold. This year we can set a historical record for the entire existence of Russia. According to my forecasts, citizens will buy more than 50 tons. Previously, private traders used 3-4 tons a year. This is due to many reasons, including the abolition of VAT, the state staked on this. And rightly so, because gold is mined in Russia, unlike Microsoft or Apple shares. We can satisfy this demand with Russian gold and stocks will not interfere with us in any way.
Andrey Kochetkov, Leading Analyst for Global Research at Otkrytie Research I agree that gold has become the main asset against the backdrop of distrust in the dollar and euro.
— The interest in gold from the side of central banks is connected, first of all, with the global geopolitical changes that are currently taking place. The so-called reserve currencies turned out to be highly politicized, so the interest of regulators in countries such as Turkey, Uzbekistan, Kazakhstan and so on is justified by the fact that they want to have an independent asset that cannot be blocked, but at the same time can be used in the trade of imported goods. The purchase of gold is due to the reduction of currency positions – British pounds, Japanese yen, euro and dollar.
In addition, gold is a traditional inflation hedge, and central banks are concerned that their reserves do not depreciate. Seeing high inflation in various regions, including the US and the Eurozone, they seek to find assets that are not subject to depreciation. Moreover, even with the current efforts of the Fed, the ECB and the Bank of England to raise rates, real rates in these regions remain negative.
Also now there is a big request to abandon the dollar in trade and switch to settlements in national currencies. Gold in this regard plays the role of an intermediate asset. Russia, China and India are already conducting test deals in this area. Gold is bought for the national currency, then it appears as the currency of payment, and then converted into the national currency of the counterparty. Summing up, buying gold is a kind of departure from the dollar system towards the diversification of international assets and an attempt to protect their reserves from politicization.
“SP”: – That is, the role of the dollar and the euro in the world will decline?
– It’s unavoidable. Using the example of actions against Russian international reserves, we see that these currencies are not safe for any counterparty. If the US asks Canada to arrest the vice president of Huawei, it is understandable that any big businessman and any state in the world cannot feel safe having their savings exclusively in dollars and euros.
In addition, financial problems are multiplying, these currencies are becoming unstable not only in terms of inflation, but also in terms of budget deficits. The same debt in relation to Japan’s GDP exceeds 250%, the US government debt has reached 31.2 trillion, which is 130% more than GDP.
“SP”: – Why do the Russian financial authorities call the purchase of gold impractical?
— It is difficult for me to answer this question, but generally speaking, the volumes of gold that the Bank of Russia bought earlier did not affect inflation in any way. Our current rise in prices is exclusively a deficit. When ships in the ports of Vladivostok wait for a month or more to unload, naturally, the markets experience a shortage of goods. And the lack of goods leads to heating up inflation. The purchase of gold by the Central Bank from Russian producers will in no way affect inflation. Even if they buy 10 tons of gold per month at a price of 4,000 rubles per gram, this is somewhere around 40 billion rubles. It is ridiculous to say that this amount of money supply will provoke inflation.
“SP”: – And what about the purchase of gold by the population?
– Now the demand for gold among the population is very high, but our producers are so lazy that they are ready to sell gold only in large bars, preferably bank ones, 10 kilograms each, and are very reluctant to sell them in 10-50 grams, that is, in volumes demanded by the population. In addition, banks are very sluggish. They still cannot create a product that would allow people to save on commissions when buying and selling bars. Requires bank gold deposits or bonds, that is, instruments linked exclusively to gold. This would allow the Central Bank not to act on the market, but to provide gold miners with stable demand. But while they themselves are very sluggish and reluctant to start producing ingots of smaller sizes.