Kazakhstan an outlier – big gold seller among central banks

NEW YORK: In a turnaround that’s already taken it from one of the world’s biggest gold buyers to a top seller this year, Kazakhstan’s central bank is looking to cut the metal’s share to as low as half of its US$34.5bil (RM156.8bil) reserves.

Alongside its counterparts in Turkiye and Uzbekistan, the National Bank of Kazakhstan has emerged among the institutions that have contributed to a second straight quarter of decline in bullion purchases from central banks, whose buying accounted for nearly a quarter of global gold demand last year.

The Kazakh sales abroad of about 67 tonnes in the first six months are part of a plan to lower the metal’s share in reserves to an “optimal” level of 50% to 55% – equivalent to around 300 tonnes, at the end of 2023, from the current 314 tonnes.

The proportion was near 56% at the end of June, the central bank said.

“Gradual” gold sales on external markets last year reached about 120 tonnes, fetching around US$7bil (RM31.8bil), “in order to diversify and ensure balance in the allocation” of reserves, the central bank said.

The shift away from bullion is allowing it to “replenish the foreign currency part of the reserves, which is invested in highly liquid instruments in external markets.”

Additionally, it still holds the metal “in foreign accounts in an unallocated form and by placing it in interest-bearing gold deposits”.

Policymakers in central Asia’s biggest energy producer are turning the page on a period that saw them bring the share of the precious metal in reserves near 70% last year from about 10% in 2011, when the government made it a “priority” to lock up domestic supplies of refined gold.

Authorities determine the appropriate proportion of bullion by “taking into account the requirements of liquidity, profitability and a moderate level of risk”, the central bank said.

“The gold market continues to demonstrate high sensitivity to the monetary policy of the US Federal Reserve (Fed),” the central bank told Bloomberg.

“In the absence of additional external shocks, the potential easing of the Fed’s monetary policy may support gold prices.”

Apart from divestments abroad, the central bank in the first half also sold 0.7 tonnes of gold bars in the domestic market, a slight increase from the same period a year earlier.

Kazakhstan is an outlier among central banks, most of whom expect an increase in the proportion of total reserves held in gold over the next five years, according to a survey published in May by the World Gold Council (WGC).

Excluding gold sales by Turkiye, which moved to limit imports of the precious metal this year after they became a drag on external finances, central banks globally were net buyers between March and May, the WGC, a lobby group for the mining industry, said in a July report.

Seen as a haven for investors during risky times or as a hedge against inflation, gold prices have held up, rallying amid signs the US monetary tightening cycle was nearing an end.

Higher rates are typically negative for non-interest bearing gold.

The Kazakh central bank was opportunistic in the timing of its gold sales this year, most of which it said took place at the end of the first quarter and the beginning of the subsequent three months, when prices were “at their historical highs”. — Bloomberg