Central banks dumping gold could make the pandemic unfavorable for the yellow metal


MUMBAI: For the first time in a decade, global central banks have gone from being net buyers of gold to sellers of precious metals The latest quarterly demand trends report from the World Gold Council (WGC) showed that central banks’ net sales they stood at 12 tons in the September quarter. This compares with purchases of 141.9 tons in the same quarter of the previous year.

The sale was driven by gold-producing nations Uzbekistan and Turkey, leading to reported gross sales increasing to 78.9 tonnes in the third quarter. It should be noted that Russia’s central bank also reported its first quarterly sale in 13 years.

According to some economists, given the fiscal stress many nations are experiencing, this is not surprising.

“The pandemic has increased fiscal stress for many nations, as countries continue to distribute fiscal support. With gold prices at high levels, central banks may choose to sell some of their precious metal holdings while fighting the crisis. If more central banks follow suit, then it may affect gold prices, as central banks have been key buyers of the yellow metal of late. So in a sense, the crisis can turn unfavorable for gold to some extent, “said an economist at a multinational bank who requested anonymity.

“Central banks that become net sellers can affect gold prices in the short term. That, coupled with the uncertainty surrounding the US elections and fund rebalancing, which typically occurs towards the end of the year, may lead to a reserve of earnings in precious metals, “said Sugandha Sachdeva, vice president of research at Religare Metals, Energy and Currency Broking Ltd.

“We may see high volatility in gold prices where prices may even test Rs48,700 / 10grams and internationally could drop to USD1800-1810 / ounce, but we will witness renewed buying interest at lower levels as the outlook in the long term it remains optimistic given the environment of low interest rates and expectations of higher fiscal spending. “

“That being said, we don’t expect all central banks to convert net sellers to gold. Some of them are likely to continue buying gold given the economic uncertainty that still looms and as they seek to diversify their reserves away from the dollar, which is experiencing significant erosion in value, “added Sachdeva.

Despite quarterly net sales, six central banks increased their gold reserves in the September quarter by a tonne or more, although total gross purchases were a modest 33 tonnes, according to the WGC report.

“United Arab Emirates (7.4 tons), India (6.8 tons), Qatar (6.2 tons), Kyrgyz Republic (5 tons), Kazakhstan (4.9 tons) and Cambodia (1 ton) were notable buyers and family members during the quarter. “the report added.

Meanwhile, gold prices have seen some correction in global markets as hopes for another coronavirus stimulus in the US fade. Following signals from the international market, gold and silver prices in India were down. on a weak base in 50,860 for 10 grams and 61,978 per kg, respectively on Wednesday. High prices for the precious metal amid a subdued outlook on employment opportunities and earnings are expected to keep jewelery demand under pressure in the upcoming festival season.

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