The central bank gold-buying frenzy continues gaining momentum as we enter the second quarter of 2023. The National Bank of Poland purchased 14.8 tons of gold in April, its largest purchase on record since June 2019. The reignited efforts to stockpile gold lifted its total reserves from $14.55 billion to $15.52 billion, reflecting both gold deposits and gold swaps.
Between March and April, Poland lifted reserves from 7.352 million ounces to 7.828 million fine troy ounces, or 243.5 metric tons, of gold. A step in this direction could mean we might see another enormous purchase from Poland in the coming months. In Poland’s large gold purchase three years ago, the nation increased reserves by a whopping 94.9 tons in just one month.
So why now? Poland hasn’t made a significant purchase in three years, so what made the nation decide to join the gold-buying frenzy this past month?
In 2021, the president of the National Bank of Poland, Adam Glapinski, explained that Poland planned to add 100 tons of gold to its reserves to prepare for “the most unfavorable circumstances.” When these “unfavorable circumstances” would occur and what they would be was unclear at the time. The central bank clearly realized that the globe’s current economic state has become unfavorable enough that it’s time to begin the gold-buying plan.
“Why does the central bank own gold? Because gold will retain its value even when someone cuts off the power to the global financial system,” Glapinski explained to a local newspaper. “Of course, we do not assume that this will happen. But as the saying goes — forewarned is always insured. And the central bank is required to be prepared for even the most unfavorable circumstances. That is why we see a special place for gold in our foreign exchange management process.”
Following Glapinski’s statements and April’s purchases, many expect that the 15-ton purchase was not a one-off deal. Poland may finally begin to execute its 100-ton strategy. If so, we can expect to see numerous large purchases from the nation in the coming months, potentially topping the figure from June 2019.
“Gold will retain its value even when someone cuts off the power to the global financial system, destroying traditional assets based on electronic accounting records,” Glapinski explained back in 2021. “Of course, we do not assume that this will happen. But as the saying goes—forewarned is always insured. And the central bank is required to be prepared for even the most unfavorable circumstances. That is why we see a special place for gold in our foreign exchange management process.”
Poland is not the only nation agreeing with this sentiment. Central bank gold buying reached record highs in 2022 and remains on track to fulfill or beat those levels this year.
In 2022, central banks purchased 1,136 tons of gold, the largest net figure on record since 1950, including 1971’s suspension of dollar convertibility to gold, the 2008 Great Recession, the Vietnam War, and many other major events that still didn’t shake government reserve stockpiling actions as much as the present day. 2022 also marked the 13th straight year of net gold purchases, and most feel confident that 2023 will continue the trend.
In the first quarter of 2023, central banks purchased 228 tons of gold, beating 2013’s record Q1 figure by 38%. Clearly, 2023 is on track for enormous gold purchases. With Poland joining the game in quarter two, we can expect even larger figures.
“It’s hardly surprising then that in a year scarred by geopolitical uncertainty and rampant inflation, central banks opted to continue adding gold to their coffers and at an accelerated pace,” the World Gold Council explained.
The other significant purchases from April included the People’s Bank of China with 8.1 tons, the Czech National Bank with 1.8 tons, and the Central Bank of Mongolia with 1 ton. “We expect central bank buying to remain robust this year (+596t), an ongoing tailwind for gold prices and sentiment,” Colin Hamilton, the managing director at BMO Capital Markets, explained.
Central banks have many reasons for investing in gold, though the common denominator remains the U.S. dollar. Nations want to devalue the most prevalent currency in the world as it continues failing. Relying on gold rather than U.S. dollars means relying on a stable, appreciating asset.
“Gold is characterized by a relatively low correlation with the main asset classes – especially the U.S. dollar dominating the NBP reserve portfolio – which means that including gold in the reserves reduces the financial risk in the process of investing them,” Glapinski explained.