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NBP Gold Reserves Growth Paused

INVESTINGNBP Gold Reserves Growth Paused

For several months last year, we were excited about the periodic gold purchases by the National Bank of Poland (NBP). Purchases that began in April and ended in November. During this period, the NBP’s gold reserves increased by 130 tons to 358.7 tons, which represents 12.3% of reserve assets. Data for December indicates that no further increase in gold reserves took place. However, considering previous statements by the NBP president, who expressed a desire to increase the proportion of gold in reserves to 20%, it can be assumed that December was merely a pause, not the end of purchases.

If we look at the November data on the official gold reserves of individual countries, Poland currently ranks 15th in the world. Unfortunately, we do not yet know whether this year’s purchases were brought to Poland. According to the NBP’s financial report as of the end of December 2022, we control 104.9 tons. The rest is most likely stored in the vaults of the Bank of England in London.

As indicated by the World Gold Council, gold is an important component of a central bank’s reserves due to its safety, liquidity, and return on investment. These three elements are the reasons why central banks aim to own this precious metal. World Gold Council estimates indicate that about one fifth of the gold mined to date worldwide is currently in the hands of central banks.

The question of the optimal proportion of gold to be held under one’s control of course remains open. It is worth remembering that if the need arose to quickly use these reserves, they should be located close to a major trade hub, like London. Then, a transaction with another central bank for example, would be devoid of logistical challenges and would be reduced to preparing the appropriate documentation. “The NBP’s financial report for last year will most likely be delivered around April, and then we will find out if the amount of gold under our control has changed compared to the state at the end of 2022,” says Tomasz Gessner, chief analyst at Tavex.

We should also note that much has changed in the approach to gold reserves maintained by central banks since the start of Russia’s aggression in Ukraine in February 2022. Russia was quickly punished by freezing its foreign reserves stored in the western banking system. Reserves estimated at around $300 billion. Plus, it was also excluded from the SWIFT payment system. Many countries, especially those representing the eastern economic bloc, realized the third-party risk borne by the US dollar and the most important western currencies.

Since then, a clear acceleration of the trend of independence from the dollar and reducing exposure to US Treasury papers can be seen. On the other hand, the share of gold in central banks’ balances and the trend of repatriating the metal are increasing. Last year was also record-breaking in terms of the scale of gold purchases by central banks, which amounted to a net 1136 tonnes.

Although the National Bank of Poland did not make gold purchases in 2022, it became very active in this respect last year, ranking second in terms of volume of purchases, after China.

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