Gold: Central Banks Increased Purchases Strongly in June

In May, central banks had already sent a signal to the market by resuming strong net purchases of gold to add to international reserves after a timid reappearance in April following significant net sales in March. Now in June, perhaps taking advantage of the poor performance of gold, they intensified net purchases, adding 51 more tons to global reserves. Leading the buyers were the central banks of Poland and China, but also joining were those from Uzbekistan, Kazakhstan, Jordan, the Czech Republic, Ghana, and Georgia. On the selling side, Russia and Turkey stood out. The raw data from June shows that gross purchases totaled 63 tons while gross sales amounted to 12 tons, according to data from the IFS of the IMF, the central banks themselves, and the World Gold Council.

The close of the first half left central banks with a gold purchase level of 102 tons, distributed among a wide group of emerging market central banks. It is worth noting that the first quarter started poorly, especially due to significant sales of 30 tons that practically erased the purchases of January and February. Then in April, they returned to buy about 17 tons and another 41 tons in May. Thus, the average net purchases for the semester were at 12 tons per month.

Who bought in June?

The National Bank of Poland (19 t) was the largest buyer with 19 tons, followed by the People's Bank of China with 15 tons, thus extending its monthly purchases for the twentieth consecutive month. Then came Uzbekistan with 9 tons and Kazakhstan with 7 tons, who maintained their purchasing pace, while Jordan with 3 tons, Georgia and Ghana with one ton each, re-entered the market. On the other hand, the largest net seller this month was Russia with 9 tons, followed by Turkey with 2 tons.

It is worth remembering that, in June, the weakness of the gold price was largely linked to the increase in the yields of 10-year U.S. Treasury bonds (25 basis points), a drop in volatility, the strengthening of the dollar, and the consequent capital outflows from global gold ETFs.

How did the first half close for central banks?

Poland remains the main buyer with 82 tons, followed by Uzbekistan with 41 tons, China with 40 tons, and Kazakhstan with 27 tons. Other significant net buyers were the Czech Republic with 11 tons, Singapore with 10 tons, Chile with 8 tons, and Jordan and Ghana with 6 tons each. Other smaller buyers are diversified within emerging markets. As for sellers, Turkey remains the largest seller so far this year with 83 tons, with most of its selling activity concentrated in the first quarter. Sales in the second quarter were modest, only 4 tons, with a reduction in "swaps" recorded at the end of June. Russia also sold gold, with net sales of 44 tons so far this year.

Looking at the accumulated performance of gold in the first half of the year, experts' analysis suggests that, on one hand, despite the high levels of bond yields not generating a greater burden for gold, on the other hand, the support derived from the weakness of the dollar against the euro was countered by the strength of the dollar against the yen, yuan, and Australian dollar. However, overall, the impact of the dollar has been less than in 2022. Additionally, both the drop in implied volatility, inflation expectations, and the reduction of the Federal Reserve's (Fed) balance sheet also had a negative effect on gold's profitability. But at the same time, the momentum of prices and capital outflows from gold ETFs pressured the precious metal, particularly in the last two months of the second quarter.

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