While 2023 proved a rocky start for inflation rates, interest hikes, and geopolitical movements, this volatile market created the perfect environment for high levels of gold buying from central banks. According to the World Gold Council, 2022 showed the highest level of net gold purchases in recorded world history, and 2023 is on track to continue the trend. In January, Singapore’s central bank purchased just under 45 tons of gold to stockpile its reserves and protect its purchasing power.
“Based on data on the Monetary Authority of Singapore website, it added 44.6 tonnes of gold to its official reserves in January,” Krishan Gopaul, a senior analyst from the World Gold Council explains.
This purchase marks the largest recorded monthly gold purchase and Singapore’s first addition to its reserves since June 2021. The central bank “records” date back to August 2000.
With this purchase, Singapore’s central bank now carries 198.4 tons of gold. Because of this delayed purchase news, the World Gold Council had to go back and update the January purchase total to reflect the 45-ton purchase by Singapore. Now, estimates show that central banks purchased a total of 77 tons of gold in January (previously 33), with over half of this purchase amount coming from Singapore’s transaction.
“Following the announcement of a ~45 tonne gold purchase by Singapore, our estimate of global net buying in January has been revised to 77 tonnes (+192% m-o-m),” Gopaul explains on Twitter.
Before updating January’s data, Turkey held the top spot for central bank gold buying. In the first month of 2023, Turkey’s central bank purchased 23 tons of gold, bringing its total reserves to 565 tons. Turkey’s climbing inflation rates are likely the primary motivating factor behind its gold-buying frenzy.
Last year, Turkey’s inflation rate peaked at 85% and closed the year at 64%. The country’s currency, the Turkish lira, depreciated in value by nearly 30% throughout the year. Conversely, in lira terms, the price of gold increased by 40% on an annual basis.
More and more countries like Singapore and Turkey are replacing their reserves with gold to protect their wealth. “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 explains.
Right behind Turkey was the People’s Bank of China, which bought 15 tons of gold in January after totaling 62 tons between the last two months of 2022. China’s reserves now total 2,025 tons.
Between 2002 and 2019, China’s central bank reserved 1,448 tons of gold before falling silent for two years until November 2022 when the nation suddenly purchased 62 tons of gold in the span of just two months. Some speculate that China continued to stockpile gold during those two years “off the books” in the State Administration for Foreign Exchange (SAFE).
China is not the only nation that may be buying gold off the books. Last year, numerous central bank gold reserve increases occurred, particularly in China and Russia. Analysts equate this behavior with wanting to reduce exposure to the dollar.
The central bank of Europe purchased a modest two tons of gold in January after Croatia joined forces. Another significant player included Kazakhstan’s central bank, which purchased four tons of gold in January, raising its total reserves to 356 tons after selling 30 tons in the last two months of 2022. Uzbekistan’s central bank, which sold 12 tons of gold in January, still carries 66% of its total reserves in gold.
In 2022, central banks purchased a total of 1,136 tons of gold, a record level setting up high expectations for the coming year. The World Gold Council believes gold buying will continue at a strong rate in 2023, though it may not break 2022’s record demand level.
“Looking ahead, we see little reason to doubt that central banks will remain positive towards gold and continue to be net purchasers in 2023. However, by how much is difficult to call, as evidenced by our expectations at the start of 2022. But it is also reasonable to believe that central bank demand in 2023 may struggle to reach the level it did last year,” the World Gold Council explains.
After Singapore’s 45-ton gold purchase in January among others, gold prices rose from $1,860 per ounce to approximately $1,960 per ounce. If central banks continue purchasing at this rate, investors can expect an excellent performance year for gold.