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Why Are Central Banks Selling Gold?

25 May 2022 - Gold News Home Page

2022 has seen a recent trend in central banks selling their gold. Globally, central banks are selling their gold reserves to take advantage of the price surge. Let us look at why the gold price has surged and how it has enabled central banks to take advantage of the present situation.

Why Has the Gold Price Risen?

As a buyer, if you are looking to invest in gold bars or coins, the best time is now. Whether you are a nation or an individual, gold trading has grown in popularity, with many central banks selling a portion of their gold reserves.

Historically, gold prices increase when consumers or buyers are unsure about the financial markets. In the last few years, this has been the scenario. There has been the global pandemic followed by the Russian-Ukrainian conflict, both of which have created socioeconomic turmoil as well as rifts in international trade. During such times, gold is regarded as a haven and is held as a hedge against currency devaluation.

When the dollar loses value, the value of gold tends to appreciate. At present, many central banks believe that the gold price is quite high at the moment, and they are selling of part of their holdings in order to retain the profits they've seen in the last several years. 

Central Banks Gold Selloffs

According to the WGC (World Gold Council), Uzbekistan has been the largest seller of gold in recent times. Other central authorities, such as Kazakhstan Central Bank, sold 5 tonnes of gold in February 2022, succeeding a 17-tonne sale in January. Qatar has reportedly sold 6 tonnes of gold, with Mongolia selling over a tonne, on par with Germany.

When gold is exchanged, the metal is bought and sold between large institutions on very tight margins. For example, gold held by the Bank of England has traded at a spread close to around $1/oz. Other central banks trade gold using similar spreads.

Final Thoughts

Central bank bullion sales do indicate that governments are trying to capitalize on the current high prices of gold. However, there is another highly relevant factor that needs to be considered. Most governments have seen excess expenditure over the last few years due to Covid. One way for governments to cover these excess costs is by selling some of their gold reserves. Therefore, the selloff that we are seeing right now is more likely related to the costs of Covid. This may indicate that it is a good time to consider buying gold. 

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