Central Banks Buying Gold

It is not surprising that as gold prices have declined over the past seven months, gold holdings in exchange traded funds (ETFs) have fallen as well. The World Gold Council pegged ETF holdings at the end of March at 1,942.15 tonnes, their highest month-end total since August 2020. By the end of October, they had fallen to 1.639.00 tonnes, the lowest reading since March 2020.

Official Gold Holding Net inflows
Metric Tonnes/ By Quarters

In contrast, central banks have been acquiring gold. The WGC estimates that central bank holdings increased by 186.0 tonnes in the second quarter of this year and 399.3 in the third. This compares to 90.6 tonnes during the third quarter of 2021. Prior to then, the record increase was 240.5 tonnes in the third quarter of 2018.The WGC noted that their third quarter reading included a large amount attributed to “unreported purchases” that skewed their result to the upside. The largest net inflows during that period were by Turkey (up 31.2 tonnes) and Uzbekistan (up 26.1). The largest decrease was by Kazakhstan at 2.4 tonnes.

Official Gold Holdings 
September 2022 by % share

The five entities with the largest holdings are the US, Germany, France, Italy, and the IMF, which together account for 54% of official gold holdings. Those amounts tend to be stable, which may blunt the impact of any one nation’s changes. However, the sixth largest official holder is Russia at 2,298.5 tonnes. Their latest reading was taken in January, before they invaded Ukraine, and the number may have changed significantly since then.

While central bank gold holdings have only had one net quarterly decline in the past 11 years, their record increase in the third quarter was more than double the 145.2 tonnes in ETF outflows between March and October. A strong US dollar and rising interest rates around the world have pressured gold prices over the past two quarters, but the aggressive gold buying by central banks could strengthen the metal’s safe-haven appeal and may be evidence that a long-term low is in place.

Originally Published November 4, 2022

Disclosure: The Hightower Report

This report includes information from sources believed to be reliable, but no independent verification has been made, and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition. Any reproduction or retransmission of this report without the expressed written consent of The Hightower Report is strictly prohibited. The data contained herein is subject to revision; independent verification is recommended. Any third party opinions regarding this report are not necessarily those of the authors. Due to the volatile nature of futures and options markets, the information contained herein may be outdated upon its release.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from The Hightower Report and is being posted with its permission. The views expressed in this material are solely those of the author and/or The Hightower Report and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: ETFs

Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.