Russia and China have led the way in first-quarter gold purchases as countries look to diversify their assets away from the U.S. dollar. This has led to the highest gold purchases by central banks in six years.
Global gold reserves increased significantly by 145.5 tons in the first quarter, an astronomical 68 percent increase compared to the same period a year ago, according to a report released by the World Gold Council. Russia remains the largest buyer of the gold with the nation reducing its U.S. Treasury holdings as part of a de-dollarization drive.
“We’ve seen a continuation of the strong demand from central banks,” said Alistair Hewitt, head of market intelligence at the World Gold Council. “We’re expecting another good year for central bank purchases, although I’ll be pleasantly surprised if they are to match the level seen in 2018.”
In addition to regular buyers like Kazakhstan and Turkey increasing their gold reserves, countries like Ecuador also added to their reserves for the first time since 2014 in the first quarter of 2019. Qatar and Colombia also made sizable purchases according to the report released by the council. The list of buyers was dominated by countries that intend to reduce their dependency on the dollar, and are typically nations that have a lower share of reserves in gold than countries in Western Europe.
Purchases by central banks have been an important support for gold, helping to offset the lower demand from bar and coin investors as well as from industrial users of the metal. This is highlighted by gold losing 1 percent so far this year, trading around $1,270 an ounce in London on Thursday.
Inflows into exchange-traded funds supported by gold during January have been erased over the rest of the year, with ETF levels currently at their lowest in about four months.
On the flip side, the World Gold Council revised its estimates for the contribution of small-scale, “artisanal,” miners, after a reassessment by its primary data provider, Metals Focus Ltd. The sector is estimated to account for between 15 and 20 percent of global gold mine production.
In countries like Zimbabwe, small-scale miners are responsible for over fifty percent of the gold production and are a pivotal part of the economy. However, the new guidelines from the London Bullion Market Association will likely make it more difficult for such miners to sell their gold legitimately because some of their haul could be classified as “blood gold,” produced outside any safety or environmental rules and possibly contributing to such crimes as child labor and slavery.
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