Despite a turbulent first quarter, global central banks’ gold reserves accumulated a net reserve of 84 tonnes, 29% lower than in the first quarter of the previous year, according to the World Gold Council (WGC).

The rise in gold reserves in the quarter was driven by a small number of sizeable transactions, amid the ongoing geopolitical crisis and surging inflation. These headwinds worked to somewhat mute central bank net demand for gold reserves, albeit net demand still remained positive.

“This corresponds with the findings from our 2021 central bank survey: for the first time respondents highlighted gold’s performance during periods of crisis as the top reason to hold gold. Activity in the sector was dominated by a limited number of central banks with a few large transactions tipping the balance.”
WGC

According to the World Gold Council, Egypt was the biggest buyer in the quarter, reporting a 44 tonne increase in its gold reserves in February 2022, representing 54 per cent increase from that of the previous quarter. Egypt, for some time now, has been adding gold from domestic sources, but the WGC said there was evidence these additions were usually in small increments.

“The Egyptian government has also been taking steps to ramp up domestic gold production in the long term. But the drop in FX reserves in January and February could mean that not all of the 44t came from domestic sources.”
WGC

Other Major Gold Purchasers

Turkey followed with net demand of gold reserves increasing by 37 tonnes in the quarter. This ramped up total gold reserves to over 430 tonnes, accounting for 28 per cent of total reserves.

India added another six tonnes to its holdings in Q1. Since resuming buying in late 2017, the Reserve Bank of India has purchased over 200 tons of gold. In August 2020, there were reports that the Reserve Bank of India was considering raising its gold reserves significantly.

Ireland was the other notable purchaser in Q1 2022, adding a further 3 tonnes of gold on top of the nearly 4 tonnes bought in H2 last year. The WGC also noted that “it also remains the only active buyer among developed market central banks, and while its monthly additions have been modest, it has increased overall reserves by 88% since August.”

At the end of the quarter, Ecuador also announced that it had added almost 3 tonnes to its reserves, sourcing the gold from small, local producers after it had been certified by an LBMA-accredited refiner.

Likewise, the Governor of the Central Bank of Ghana, Dr Ernest Addison, said the bank purchased a total of 600kg since the Domestic Purchase Programme was launched in June 2021. The Bank’s target is to increase its gold reserves from around 9 tonnes to over 17 tonnes by 2026.

Russia’s central bank resumption of its purchase of gold in February 2022, following international sanctions was the “biggest announcement during the quarter”. The CBR suspended its gold purchase in 2020, since its gold reserves have largely remained unchanged. Russia held just under 2,300t of gold (21% of total reserves) at the end of January 2022, according to WGC.

Interestingly, majority of sales in Q1 2022 came from Uzbekistan and Kazakhstan, at a time of rising gold prices. Kazakhstan was the largest seller during the quarter, decreasing its gold reserves by 34 tonnes to 368 tonnes. Uzbekistan also decreased its gold reserves by 25 tonnes to 337 tonnes. On the other hand, Poland sold just over 2 tonnes during the quarter, taking gold reserves to 229 tonnes (9% of total reserves).

Outlook for Gold Demand

Considering the outlook for months ahead, the World Gold Council expects central banks to remain net purchasers of gold in 2022, saying “gold might attract further interest as a diversifier as central banks seek to reduce exposure to risk amid heightened uncertainty.”

Central banks added 463 tons of gold to global reserves in 2021. That was 82% higher than 2020. Last year was the 12th consecutive year of net purchases. Over that time, central banks have bought a net total of 5,692 tonnes of gold.

After record years in 2018 and 2019, central bank gold-buying slowed in 2020 with net purchases totaling about 273 tonnes. The lower rate of purchases in 2020 was expected given the strength of central bank buying both in 2018 and 2019. The economic chaos caused by the coronavirus pandemic has also impacted the market.

Central banks’ demand came in at 650.3 tons in 2019. That was the second-highest level of annual purchases for 50 years, just slightly below the 2018 net purchases of 656.2 tonnes. According to the WGC, 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second-highest annual total on record.