This was a continuation of a twelve-year trend of net gold buying by central banks, but it may also have reflected the global economic environment. Central banks cited gold’s “performance during times of crisis” as the top reason to hold it for the first time in a recent survey. In the same survey, 84% of respondents rated “Uncertainty over economic recovery following Covid” as a relevant factor in their reserve management decisions. The Covid-19 pandemic and associated economic disruption have highlighted the role of gold as a safe-haven asset.

Gold is a counter-cyclical asset, meaning that it performs well during periods of widespread instability, as shown by its skyrocketing value during the Covid-19 pandemic and by the slowing growth of gold demand from investors as economies have recovered in the wake of the initial Covid-19 crisis.

Gold is universally accepted, as well as being in demand as a commodity, further protecting it from economic instability. The gold price is also strongly negatively correlated with the strength of the US dollar. This has made gold appealing as a hedge against the uncertainty and inflation associated with the global economic recovery from the pandemic.

Additions to Reserves

Of the banks which added to their reserves in 2021, several have been buying gold steadily for years. The Reserve Bank of India added 41t to its gold reserves in the September quarter of 2021, up 41% from the 29t recorded in the June quarter and 925% year on year. This made India the largest buyer of gold in the September quarter and brought the Reserve Bank’s gold reserves to 745t.

The Reserve Bank of India has been adding steadily to its gold reserves since December 2017, although not at the level seen in the September quarter. Similarly, Kazakhstan’s central bank increased its gold reserves by 15t, bringing its total reserves to 407.2t by November 2021 and continuing a years-long trend of purchasing gold.

In the September quarter of 2021, the Russian central bank bought 6.22t of gold, bringing its total reserves to about 2,299t and making it the fifth-largest buyer of the metal during the quarter. This was the first time the Russian central bank had purchased gold in more than a year. Russia steadily increased its gold reserves from 2005 to 2020, then announced that it was suspending its gold purchases from April 2020 onwards.

The Russian central bank then sold gold from July 2020 to July 2021. This was likely related to its coin-minting programme, with the bank issuing investment gold coin on 27th January. Its purchases in the December quarter increased its gold reserves to 2,298.53t, close to the level seen in the June quarter of 2020 (2,299.87t), and they were likely intended to rebalance its stocks after the sales.

Gold represents about 23% of the Bank of Russia’s reserve assets. The steady increase in the bank’s gold assets between 2005 and 2020 was related to the country’s de-dollarisation policy, which itself was related to political tensions between Russia and the US, and gold now accounts for a larger share of the bank’s reserves than do US dollars.

The National Wealth Fund (NWF), Russia’s public pension fund, announced in 2021 that it will be increasing the share of gold in its portfolio to 20% and divesting from the US dollar entirely. The NWF does not form part of Russia’s official reserves, but the Bank of Russia takes into account the currency structure of the NWF when managing the country’s foreign exchange reserves.

New Interest in Gold

Other banks added to their gold reserves in 2021 for the first time in several years. Thailand, the largest gold buyer in 2021, last added to its reserves in 2017. Over the year, the country increased its gold reserves by 90t to 244t. Central Bank of Thailand Governor Dr Sethaput Suthiwartnarueput cited security, return, diversification and tail-risk hedging as factors in the bank’s decision.

Hungary’s Magyar Nemzeti Bank, the third-largest buyer in 2021, tripled its reserves to 94.5t. This was its first purchase since it increased its reserves 10-fold to 31.5 in 2018, which itself was the bank’s first gold purchase for several decades. In explaining its decision, the Magyar Nemzeti Bank cited gold’s role as a safe-haven asset in the face of the Covid-19 pandemic, inflation concerns and global spikes in government debts.

Brazil’s central bank, the fourth-largest buyer, nearly doubled its gold reserves, increasing them by 62t to 130t, in its first significant purchase since 2012. Singapore’s central bank, meanwhile, added to its gold reserves for the first time in at least 21 years, buying 26.3t to bring its total reserves to 154t. A spokesperson for the bank stated that the purchase was intended to ensure the resilience of its foreign reserves. Ireland’s central bank purchased 3t, increasing its reserves for the first time since 2008, but gave no explanation for the purchase.

Net Gold Sellers

Six central banks decreased their gold reserves by a tonne or more in 2021. The Philippine central bank, Bangko Sentral ng Pilipinas (BSP), was the largest net gold seller of the year, with net sales of 31t, which lowered its gold holdings to 154t. This was the largest annual sale from a central bank since Venezuela’s 86t sale in 2016.

The sale follows BSP’s shift in September 2020 to actively trading gold, rather than passively holding it, with the aim of keeping the metal at around 10% of its total reserves. Other significant sales came from the central banks of the Kyrgyz Republic (7t), Sri Lanka (~4t), Germany (3t), and the UAE (2t).

Looking Forward

The trend of net buying by central banks is expected to continue in 2022, but likely on a smaller scale. Sentiment towards gold remains positive, but central bank buying in 2021 was bolstered by several large strategic purchases, and purchases by previously large buyers such as China and Russia have eased in recent years. Notably, however, Adam Glapinski, governor of Poland’s central bank, indicated that the bank plans to increase its gold reserves by 100t in 2022.