The World Gold Council (WGC) has now released the latest figures for national central bank gold holdings for November, and while the total level of gold purchases remains at a significant level overall, it should be recognised that the vast majority of the reserve increases is only coming from three countries – China, Russia and, to a lesser extent, Kazakhstan. Few other countries are reporting any changes at all, and those that are doing so are effectively insignificant in the scheme of things.
Over the past six months, both China and Russia have been buying in the order of between 30 and 45 tonnes per month between them. Kazakhstan’s pace of purchase is rather smaller at around 2-3 tonnes a month. Over the five months to November (China was not reporting monthly increases prior to this), these three nations alone have accounted for around 90% of the global reported gold reserves increase. And of the other 10%, Turkey accounts for around 4%, but its figures are not strictly comparable as they include that country’s policy of including gold in its reserve requirements from commercial banks, which is anomalous in relation to other nations’ reporting practices, and prone to comparatively large monthly fluctuations.
So while we do anticipate the scale of central bank purchasing to continue (China has already noted it bought around 19 tonnes in December), it does look to be particularly vulnerable to any change in purchasing policy from either of the two big buyers. Russia in particular is a little more erratic in its month-by-month purchasing – last year for example it bought no gold in the first two months of the calendar year (and no doubt if the same happens this year the mainstream media will tell us central bank purchases are collapsing!), yet in the 11 months so far reported by the WGC, Russia has actually been the largest buyer with a total of 185 tonnes. If it matches its December 2014 purchase of 20.73 tonnes that will bring the annual total to just over 200 tonnes – a well up on the 163 tonnes it purchased in 2014, but its month to month purchase figures can be erratic.
One should note that the figures quoted above are as reported by the individual nations to the IMF – they are not audited – and most nations just report the same numbers year in year out. There have been doubts cast in the past on China’s reporting in particular – doubts that were shown to be correct when the Asian dragon out of the blue reported a massive 604 tonnes gold reserve increase in June, apparently accumulated over the prior 6 years, but not reported at the time. There are thus continuing doubts about the true level of Chinese reserves, some estimates putting them considerably higher than the current figure of around 1,740 tonnes, which only comprises around 1.8% of its total forex holdings, while the top Western countries apparently manage 60-70% of their forex holdings in gold. But these figures and levels may be equally dubious. It isn’t only China which is believed to falsify its reported holdings to the IMF.
Both China and Russia do currently have stated policies to accumulate gold into their reserves so we do expect their purchases – and those of Kazakhstan – to continue at or around current stated levels, but the oft repeated analysts mantra that central banks are buying gold is only true in part and could be considered misleading. It is only around the three countries noted in this article which are increasing their gold holdings on any kind of regular basis. The rest are, at least officially, neutral in this respect.