Poland is on a gold-buying streak. In May, the central bank purchased 19 tons of gold, allowing the nation to reach its record high. Just a month before, Poland purchased 15 tons, marking its largest gold purchase in the last three years, though clearly, that record was short-lived.
“This [gold purchase] follows the 15 tonnes of gold added in April and lifts gold reserves to a new record high of 263 tonnes,” Krishan Gopaul, a senior markets analyst for the World Gold Council, explained on Twitter.
Poland’s record-breaking gold announcement came right after additional purchase figures from a few other notable nations, though none as large as Poland’s. The Reserve Bank of India purchased 2 tons of gold, the Czech National Bank added 1.8 tons to its reserves, Russia purchased 3.1 tons, and the Kyrgyz Republic’s central bank purchased 1.5 tons.
Analysts believe these figures show that central banks are nowhere near done with their gold-buying frenzy that began at the start of 2022. Central bank demand continues to provide critical support to gold prices, allowing the precious metal to soar above $2,000 per ounce numerous times this year already.
George Milling-Stanley believes this sentiment will forge on as central banks continue their efforts to devalue the U.S. dollar. Numerous nations continue flocking toward gold to support their own economies with something more stable.
“Emerging markets central banks have been behind the vast majority of the buying over the past 13 years because, on average, they have more than two-thirds of their reserves in dollar debt and less than 5% of their reserves in gold,” George Milling-Stanley explained. “That is an imbalance they regard as dangerous, and it’s an imbalance that they’re doing their best to address.”
Poland is a perfect example of this reserve rebalancing strategy. The record buying rates for the last two months are not coincidences. Many think Poland has a plan based on statements made by the national bank’s president, Adam Glapinski, back in 2021.
At the time, Glapinski explained that the National Bank of Poland planned to add 100 tons of gold to its reserves to prepare for “the most unfavorable circumstances.” In 2021, this event did not occur. Fast forward to 2023, with a quarter of this 100-ton purchase already completed, and many are beginning to realize the trend.
Poland’s central bank must see 2023’s economic landscape as the unfavorable circumstances defined a couple of years back. Now the central bank is ready to stockpile its reserves to prepare accordingly.
“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 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 forging the path for other nations to follow suit. Unfavorable circumstances seem to be the one consistent factor defining the marketplace in 2023, allowing gold to shine as a safe-haven asset. Nations want to protect their purchase power with something they can actually rely on, unlike the U.S. dollar.
“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 when referring to record gold purchases in 2022.
Last year, central banks stockpiled 1,136 tons of gold, breaking all records since 1950. Based on historical research, central banks tend to carry approximately 40% of their reserves in gold, though in 1980, gold accounted for 70% on average. Despite the last year and a half of record purchases, the figure today still sits far below both of these averages, meaning we still have plenty of room for growth.
“What’s happening today with central banks buying gold is that re-emphasizes this sort of chess game being played around these de-globalization trends and the need to own neutral assets,” Tavi Costa, a portfolio manager at Crescat Capital, explained. With interest rates around the world moving higher, we are going to see a lot more volatility in foreign exchange markets. In this environment, central banks will need to enhance their reserves over time by owning more precious metals.”
According to Costa, if central banks increase their holdings to historical averages, they would need to invest $3.2 trillion in the precious metals market.