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Business News/ Markets / Mark To Market/  Central banks dumping gold could make pandemic unfavourable for the yellow metal
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Central banks dumping gold could make pandemic unfavourable for the yellow metal

Despite the 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 tonne, as per a WGC report

Gold prices have seen some correction in the global markets as hopes of another coronavirus stimulus in the US are fading. (Photo: Reuters)Premium
Gold prices have seen some correction in the global markets as hopes of another coronavirus stimulus in the US are fading. (Photo: Reuters)

MUMBAI: For the first time in a decade, global central banks have turned from net buyers of gold to sellers of the precious metal The latest quarterly demand trend report by the World Gold Council (WGC) showed that net sales by central banks stood at 12 tonnes in the September quarter. This compares with purchases of 141.9 tonnes in the same quarter a year earlier.

The selling was driven by gold producing nations Uzbekistan and Turkey, which led to reported gross sales jumping 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 that many nations are witnessing, this is not surprising.

“The pandemic has increased fiscal stress for many nations as countries continue to dole out fiscal support. With gold prices at elevated levels, central banks may opt to sell some of their precious metal holdings as they battle the crisis. If more central banks follow suit, then it may weigh on gold prices as central banks have been key buyers of the yellow metal in recent times. So, in a sense, the crisis may turn unfavourable for gold to some extent," said an economist with a multinational bank requesting anonymity.

“Central banks turning net sellers may impact gold prices in the short term. That, coupled with the uncertainty around the US elections and fund re-balancing which typically happens towards the end of the year, may lead to some profit-booking in precious metals," said Sugandha Sachdeva VP-Metals, Energy & Currency Research, Religare Broking Ltd.

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

“That said, we don’t expect all central banks to turn net sellers in gold. Some of them are likely to continue buying gold given the economic uncertainty is still looming large and as they are looking to diversify their reserves away from the dollar which is witnessing significant value erosion," Sachdeva added.

Despite the 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 tonne, said the WGC report.

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

Meanwhile, gold prices have seen some correction in the global markets as hopes of another coronavirus stimulus in the US are fading. Taking cues from the international market, gold and silver prices in India were on weak footing at 50,860 per 10 gram and 61,978 per kg, respectively on Wednesday. High prices of the precious metal amid muted outlook on employment opportunities and incomes are expected to keep jewellery demand under pressure in the upcoming festival season.

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Published: 29 Oct 2020, 01:11 PM IST
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