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It’s been the worst performing month for gold since 2008, yet the world’s central banks continue to add tonnes of the stuff to their balance sheets. Since the bombs started falling in Iran, gold has lost some $800 per ounce in value, or almost 20% for the quarter. It saw an 11.65% drop in June, during which it tested twice the waters of the sub-$4,000 range, and recorded the worst monthly performance since October, 2008.
Despite this, the People’s Bank of China added 15 tonnes of gold in June, its 20th straight month of buying. Poland added 15 tonnes in May. Uzbekistan added 8.7 tonnes that same month. Kazakhstan, Czechia, Malaysia, and Chile have all been big buyers as well this year.
A record 45% of central banks told the World Gold Council last month they plan to add more. The majority of respondents to this survey also said they (74%) see moderate or significantly lower US dollar holdings within global reserves over the next 5 years. Responses were also fairly consistent between central banks in advanced economies, emerging markets, and developing economies, with the majority anticipating that the proportion of total reserves held in gold would be moderately higher in 5 years’ time.
Gold fell sharply following the inaugural press conference of Federal Reserve Chairman Kevin Warsh, whose announcement of changes to Fed communication policy were perceived as hawkish, strong for the dollar, and therefore deleterious to the investment case for gold, which as the World Gold Council Survey shows, is based around continual central bank exchanging of dollars to gold, continual monetary debasement in the US, and the much wider profit margins enjoyed by mining companies following gold’s rise to $4,000.
Gold gained 2% last week, snapping the June gloom after substantially lower-than-expected job numbers coupled with two downward revisions to previous months’ employment creation.
When asked about relevant factors in their decision to hold gold, 90% of central bank respondents indicated to the World Gold Council that gold’s performance during times of crisis is highly or somewhat relevant to their organization, a record high for this factor. 84% of respondents indicated that gold’s role as a store of value was a relevant factor while 83% pointed to gold’s attribute as a portfolio diversifier.
The investment case, at least concerning central banks, seems substantially intact in the medium to long term. WaL
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