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Gold: Central Bank Buying Climbing off of 10 Yr Lows

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Gold buying by central banks, an important driver of bullion’s advance in recent years, is forecast to pick up in Y 2021 after a slowdown this year.

We see demand from the official sector rising to about 450 toners after a drop to 375 tonnes this year, which would be the lowest in a decade.

HSBC Securities (USA) Inc. expects a slight up-tick to 400 tonnes from an estimated 390 tonnes in Y2020, the 2nd-lowest amount in 10 yrs.

While the forecasts are far from the near-record purchases of more than 600 tonnes a year seen in both Ys 2018 and 2019, increased central bank activity helps bolster bullion.

Russia could return to the market next Spring and China’s PBoC may resume adding to reserves after the US elections.

This development may have a bigger impact on the market if ETFs Key drivers of demand in Y 2020 slow their buying as global economies recover from the China virus chaos.

While the influence of central bank activity should not be discounted, it is taking a backseat to ETFs and other forms of demand this year.

Bullion prices and ETF assets surged to a record in Y 2020 as investors sought safe-havens, looser monetary policy and the potential debasement of fiat currencies.

Spot gold has since dropped from its all-time high and is set for the biggest monthly decliner since Y 2016, but is set to cap an 8th Quarterly gain, supported by sustained flows into ETFs.

Net central bank purchases have slowed down but are still positive, so there is no risk that central banks become a source of Southside pressure on prices like they were in the 90’s

While central banks were net buyers for a 10th yr running in Y 2019, demand has become more concentrated, with fewer banks adding to reserves in Y 2020, according to the World Gold Council (WGC). Purchases dropped 39% to 233 tonnes in 1-H from the same frame a year ago.

Each central bank determines the gold allocation that is optimal for its own situation, according to the head of Central Banks Relationships at the WGC.

The broader push to buy gold is clear due to a longer-term de-dollarization trend and a bias toward reserve diversification,” said our noted economist/founder Shayne Heffernan.

Have a healthy day, Keep the Faith!

Paul Ebeling
Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.   

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