UAE ranks world's third largest gold purchaser
The past two months clearly suggest gold continues to be an important component of foreign reserves despite heightened levels of demand in recent years.
The UAE increased its gold reserves this year, becoming the world's third largest buyer of the yellow metal in the first two months of 2020, according to World Gold Council data.
Turkish central bank was the top buyer of gold at 41 tonnes (T), followed by the Russian Federation at 19T, the UAE at 5.9T, Kazakhstan at 2.8T and Mongolia at 1T.
The UAE made the entire purchase of 5.9T in January. Among other regional countries, Saudi Arabia bought just 0.1 tonnes in January while Qatar purchased 1.6 tonnes in January but sold the same amount a month later. None of the other GCC countries made purchases during 2020.
In 2019, the UAE and Qatar were the only buyers of gold, purchasing 15.0 tonnes and 11 tonnes, respectively.
"We often get asked if central bank demand will be sustained. The past two months clearly suggest gold continues to be an important component of foreign reserves despite heightened levels of demand in recent years. But like everyone else, the recent market instability and uncertainty will be at the forefront of central bankers' mind," said Krishan Gopaul, market intelligence group at World Gold Council.
"While we believe central banks will remain net buyers in 2020, it's reasonable to think we may not see as much buying as we did over the past two years," he added.
As of April 2020, the UAE's of Gold shoots over 7-year peak ficial gold holdings were 28.4 tonnes, accounting for 1.3 per cent of reserves, data from World Gold Council showed. Saudi Arabia, the region's largest economy, holds highest reserves in the region at 323.1 tonnes. Kuwait 79.0 tonnes, Qatar 42.2 tonnes and Bahrain 4.7 tonnes.
Raju Menon, chairman and managing partner of Kreston Menon, says gold is the most reliable asset when things are doing down as equity, bonds and currencies cannot be reliable when there is a downturn.
"Whenever there is a boom, gold can be liquidated and so you can change the asset mix. Gold normally works as a trustable reserve for central banks. When things are going down, they consider purchasing gold. Even Russia did a few years back. In olden days, gold was only basis for currency, then it was considered as a reserve and asset," said Menon.
He said central banks will continue to purchase more gold in coming months as higher reserves reflect support to economy and currencies because the coronavirus pandemic will have worse impact than 2008 financial crisis.
Anurag Chaturvedi, managing partner, Chartered House, said gold is a strong commodity used to hedge against the inflation.
"In volatile economic situations, fiat currency often fluctuates to it purchasing power to inflation, however gold tends to be priced in those currency units and thus tends to arise along with everything else in inflation," said Chaturvedi.
World Gold Council said, in February, central banks bought a net 36 tonnes of gold, almost a third higher than January's net purchases, but 52 per cent lower year-on-year. This brings year-to-date net purchases to 64.5 tonnes, 44 per cent lower than the 116.1 tonnes of net purchases over the first two months of 2019.
Breaking down February's net total into its component gross purchases (39.1t) and sales (3.1t) shows that purchases remain healthy and sales remain low.
Of the central banks which have reported their gold reserves at the end of February, Turkey (24.8t), Russia (10.9t), Kazakhstan (1.8t) and Qatar (1.6t) were the only noteworthy buyers during the month.2 Meanwhile, Uzbekistan (3.1t) was the only significant seller, he said.
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