Singapore Bullion Market Association

Website Sponsor

Article List

Article List

The Evolution of Central Bank Gold Buying: Reasons Behind 2022’s Record-Breaking Purchases

By Shaokai Fan, Head of Asia-Pacific (ex-China) and Global Head of Central Banks, World Gold Council

In 2022, central banks bought a record-breaking amount of gold, adding over 1,100 tonnes of the yellow metal. While the war in Ukraine and rampant inflation may have played a role, some might think that it is only natural for central banks, alongside many other investors, to load up on gold.

While these factors may have figured in the minds of central bankers, the evolution of their thinking towards holding gold has shown considerable evolution in the past two decades. While 2022 may have been an historically strong year for central bank gold buying, it is but the latest in a thirteen-year stretch of net buying by these institutions.

A Slow Evolution from Net Sellers to Net Buyers

Central banks have long been familiar with gold as an asset class. Through variations of historical gold standards, central banks accumulated large gold reserves initially to back their paper currencies. After the end of the Second World War, the implementation of the Bretton Woods system continued to place gold at the heart of the international monetary system. The US dollar would be pegged to gold with guaranteed convertibility at a fixed rate, while all other currencies would be pegged to the US dollar. However, skyrocketing US budget deficits in subsequent decades led to a breakdown of the Bretton Woods system until the US finally suspended the convertibility of the dollar to gold in 1971, effectively ending gold’s formal role in the international monetary system.

For several decades after the end of the Bretton Woods system, central banks found themselves managing large gold reserves despite the fact that it no longer had any formal function in backing currency. This led to a sustained period of central bank gold sales, in particular from Western European central banks. For many years, central banks were net sellers of gold and it seemed like the yellow metal would never regain its once-prominent role as an international reserve asset. The 2008 global financial crisis abruptly reversed this phenomenon, however, as the advent of quantitative easing by many central banks sparked fears of currency debasement and the spectre of hyperinflation. Western European central banks ended their gold sales as they found value in gold as a strategic asset amid a quickly changing monetary environment. More significantly however, emerging market central banks began to accumulate large quantities of gold reserves as they saw their large US dollar holdings come under threat from quantitative easing.

Gold Centre sperad

Three Phenomena Driving Central Bank Gold Buying Post-2008

In the years since the 2008 global financial crisis, central banks’ attitude towards gold has been defined by several major phenomena: Western central banks have ended gold sales but are unlikely to add additional gold, emerging market central banks have emerged as the driving force behind new gold buying, and central banks in countries that produce gold have developed programmes to add gold reserves through domestic production. Among these, the buying from emerging markets has largely reshaped the story of gold as a central bank reserve asset.

Since 2008, the central banks of Russia, China, India, Turkey, and many other larger emerging market economies have added significant quantities of gold to their reserves. Furthermore, many other emerging markets central banks including those of Thailand, Brazil, Hungary, and Poland, have also made notable purchases. These central banks started with a very low level of gold holding compared to their advanced economy peers. The drive to diversify their reserve assets from a variety of risks, ranging from market-driven factors to purely political risks, has naturally led many of them to choose gold.

In addition, the central banks of countries like Kazakhstan, the Philippines, Mongolia, and others have tapped domestic gold production to add to their official reserves. This method can be tremendously advantageous as it allows a central bank to pay for a reserve asset using local currency, whereas buying gold on the international market would require exchanging a hard currency (like the US dollar) for gold. In recent years, this facet of central bank gold buying has spread to several other countries. The central banks of Zambia, Tanzania, Ecuador, and others have started or restarted domestic gold buying programmes.

Why Central Bank Gold Buying Broke Records in 2022

Returning to the record-breaking level of central bank gold buying in 2022, there are several factors that may have driven this extraordinary amount of activity. Global geopolitical stability has been markedly less certain, as Russia’s invasion of Ukraine has refocused attention on other global hotspots like the Taiwan Straits or the Korean peninsula. Strong Western unity against the invasion has strengthened ties between Russia and China, while many non-aligned countries are precariously balancing relations between these two camps. This has prompted a wave of de-globalisation and heightened tensions.

From a central bank perspective, the rapid imposition of sanctions against the Russian central bank’s foreign currency reserves was a new and unexpected response. While some central banks have faced sanctions before, none approached the size and importance of the Bank of Russia. The freezing of its offshore foreign currency reserves proved that the US dollar could indeed be weaponised at a large scale. While most central banks do not anticipate a hostile showdown with the West, the sanctions against the Russian central bank may have prompted a rethinking of the nature of political risk and the accessibility of a central bank’s foreign currency reserves that are domiciled overseas.

Gold, if stored domestically, is immune from seizure. While a country facing international sanctions would have difficulty using gold for cross-border transactions, its mere existence provides a level of comfort within a domestic economy and financial markets. This may have been a factor that has prompted the large-scale gold buying in 2022. For the first time in several years, China’s central bank reported gold purchases, for instance. Furthermore, large gold purchases also came from the central banks of Iraq, Egypt, Turkey, and the UAE in 2022 as well.

Singapore Joins Gold Buying Trend​

Singapore Joins Gold Buying Trend

Singapore has not been a bystander in the recent rush to gold among central banks. In January and February 2023, the Monetary Authority of Singapore (MAS) reported a 51-tonne increase in its gold reserves. Despite the impressive purchase, this action only brought gold to roughly 2% of the MAS’ total official reserves due to the vast size of Singapore’s war chest. It also marked the second time in recent history that the MAS bought gold, complementing a roughly 40-tonne purchase in 2021. These purchases were the first time that the MAS added gold in decades.

The MAS is characteristically tight-lipped about its rationale for adding gold. However, these purchases coincide with an increasing drumbeat of concerns about the state of regional geopolitics from Singapore’s political leaders. The fallout from the war in Ukraine has reignited old fears of conflict in East Asia, in which Singapore would undoubtedly be affected. Those fears, combined with the MAS’ relative low level of gold holdings, may have prompted a renewed interest in gold. However, as with many central banks, the rationale will be closely held by the decision-makers.

Will Central Banks Continue to Buy Gold?

Central bank investment trends can be difficult to assess. Their investment decisions are not purely based on market factors but usually involve elements of political and strategic calculation as well. Therefore, it is difficult to say whether central bank gold buying will continue, and certainly whether it will continue at the blistering pace we witnessed in 2022. However, the first quarter of 2023 has so far shown a continuation of the trends seen last year. China continued to report gold buying in the first quarter while the aforementioned purchases from Singapore also confirms the ongoing interest in buying.

The fundamental reasons that drove central bank gold buying last year continue to persist. In fact, recent discussions have increasingly focused on the long-term role of the US dollar in the global economy and whether alternative currencies or arrangements should displace its supremacy. China has been playing a more active role in the Middle East, and more oil is now being denominated in renminbi than before. The BRICs countries have also floated the idea of an alternative currency system. Most analysts predict that the US dollar will continue to be the unparalleled currency of international trade for many years to come, but its position will face a steady erosion that may be accelerated due to the weaponisation of the dollar in recent years.

What this may mean for gold as a reserve asset is still unclear. However, the central bank of Hungary may have provided some insights into how central banks view this phenomenon. After a substantial gold purchase in 2019, the Magyar Nemzeti Bank issued a press release detailing its rationale, a rare step by a central bank. The press release stated that the Hungarian central bank added gold because it foresees disruption during a period of transition in the international monetary system, and that gold has traditionally been a risk mitigator during such periods. With so much uncertainty clouding the global outlook at this stage, perhaps gold can still shine as a beacon of stability.

SHAOKAI FAN

SHAOKAI FAN is the Head of Asia-Pacific (ex-China) and Global Head of Central Banks at the World Gold Council. He advises governments on gold matters and engages with central banks and sovereign wealth funds on investment considerations. Shaokai previously worked at Standard Chartered Bank in various roles. He holds a Master’s degree in Public Administration from Columbia University and the London School of Economics, and an undergraduate degree in finance and economics from New York University.

PREV ARTICLE
NEXT ARTICLE
Back to Index

Singapore Bullion Market Association Secretariat-Lee-Jia-Yi

Lee Jia Yi

OPERATIONS & ADMIN EXECUTIVE
Before joining SBMA, Jia Yi worked as an Admin & Reporting Officer in her previous role. She holds a Diploma in Business & Social Enterprise from Ngee Ann Polytechnic. Jia Yi is responsible for managing and maintaining physical and digital files in SBMA, supporting invoicing processes, reconciling receivables and payables, coordinating meetings and conferences. Additionally, she will provide support to the team and assist the Business Director in managing the Association’s office operations and general administrative activities.

SECRETARIAT SBMA-Emily-Oh

Emily Oh

OPERATIONS & ADMIN EXECUTIVE
Emily Oh is the Operations & Admin Executive, a seasoned professional who values teamwork and effective communication. She is skilled at adapting to new challenges and takes a proactive and resourceful approach to every task. Before joining SBMA, Emily had experience coordinating international travel arrangements and spearheading community initiatives. Her role at SBMA will be providing operational and administrative support for projects and other matters to the team.

SECRETARIAT SBMA Clara-Chang

Clara Chang

MARKETING & COMMUNICATIONS EXECUTIVE
Clara Chang joins SBMA as the Marketing & Communications Executive, enriching the team with her extensive experience in content creation, social media management, and digital marketing. Prior to joining SBMA, Clara held the position of Marketing Executive at her previous job. She holds two bachelor’s degrees from the University at Buffalo, one in International Trade and another in Geographical Information Science. Her core duties will include maintaining the SBMA website, managing the quarterly Crucible newsletter, among other responsibilities.

SBMA Committee-Photo-john-levin

Mr John Levin

Global Metals
TD Securities
John Levin is the Head of Metal Sales & Trading – APAC at the Toronto Dominion Bank’s Singapore office. Prior to this role, he devoted seven years to leading precious metal sales for the ANZ banking group in his home country, Australia. Notably, from 2009 to 2011, John played a significant role on the management committee of the London Bullion Market Association while serving as the Head of Precious Metals Sales for HSBC Global Banking and Markets in the UK.

SBMA Secretariat-Fabian-Lew

Fabian Lew

MARKETING & COMMUNICATIONS OFFICER

Fabian was a Business Development and Marketing Associate before joining SBMA. He graduated from Singapore Management University with a Bachelor’s degree in Economics.

He has joined SBMA since February, 2022.

SBMA-margare-secretariat

Margaret Wong

BUSINESS DIRECTOR

Margaret Wong, Business Director at SBMA (Singapore Bullion Market Association), brought valuable experience from her previous role at the World Gold Council (WGC). Her tenure at WGC provided her with extensive exposure to the gold community in Singapore and the broader region. This background has been instrumental in establishing strong working relationships within the industry.

Margaret’s role at SBMA encompasses a diverse range of responsibilities. She oversees office management, business support processes, finance, and administrative functions essential for the smooth operation of the team and management committee. Additionally, Margaret handles membership matters, member communications, and addresses public inquiries related to SBMA.

One of Margaret’s key responsibilities is coordinating with the Event Management Company for SBMA’s prestigious annual event, the Asia Pacific Precious Metals Conference. This flagship conference plays a crucial role in the industry, making her involvement pivotal in its success.

Described as resourceful and self-motivated, Margaret Wong brings a wealth of skills and experience to her role at SBMA, ensuring efficient operations and effective engagement within the precious metals community in Singapore and beyond.

SBMA-Albert-secretariat

Albert Cheng

Chief Executive Officer

Albert Cheng joined the World Gold Council in March 1993 as a Regional Manager, becoming Managing Director, Far East in 2003. He retired at the end of March 2015 and was subsequently named its Advisor. He has also been an International Advisor to the Shanghai Gold Exchange since 2002.

His marketing career began with Dentsu Young & Rubicam, Hong Kong in the early 80’s. He began gold marketing in July 1985 when he joined the Royal Canadian Mint as a Regional Manager for Southeast Asia.

He was appointed honorary CEO of SBMA in November 2015. He is responsible for the success and strategic development of SBMA, represents the interests of the Association, and is responsible for all the legal and regulatory aspects of the work of the Association. He is the primary contact for regulators and government bodies on bullion market development.

Ms Pawan Nawawattanasub

Ms Pawan Nawawattanasub

CEO
YLG Bullion Singapore Pte Ltd

Pawan is the CEO of YLG Bullion Singapore and founder of YLG Bullion International. She has almost 40 years of experience in the jewellery industry and established YLG in Thailand in 2003. In 2012, she brought YLG to Singapore. She sits on the Board of Directors of the Thailand Gold Traders Association, the Thailand Futures Exchange’s Arbitration Committee, and the Rotary Bangkok committee. She holds a master’s degree in Political Science.

SBMA-Shaokai-Fan

Mr Shaokai Fan

Head of Asia-Pacific (ex China) and Global Head of Central Banks
World Gold Council
Shaokai Fan is the Global Head of Central Banks at the World Gold Council, responsible for advising governments on gold matters, and enhancing the gold market through engagement, dialogue, and thought leadership. He works directly with central banks and sovereign wealth funds on investment considerations. Prior to this position, Shaokai held multiple roles at Standard Chartered Bank, including Director for Asia Strategic Initiatives and Associate-Director for Public Sector coverage. Shaokai holds a Masters of Public Administration from Columbia University and the London School of Economics, and an undergraduate degree in finance and economics from New York University.

SBMA-Committee-Alan-Liew

Mr Alan Liew

Head of Bullion & Commodities Trading
United Overseas Bank Limited
Alan is Head of Bullion and Commodities Trading for Group Trading in Global Markets, United Overseas Bank (UOB). Alan joined UOB and started the bank’s commodities trading business in 2014, previously he spent eight years in Standard Chartered Bank (SCB) trading both precious and base metals. During his tenure at SCB, he obtained the SGE gold trader licence and was part of the pioneering team for the SGE business and the FX quantitative trading team. Prior to trading, he worked for Monetary Authority of Singapore in the Financial Risk Management Division. He holds a BSc (Hon) in Computer Science at National University of Singapore and a MSc in Financial Engineering at Nanyang Technological University.

SBMA-Committee-Nikos

Mr Nikos Kavalis

Managing Director
Metals Focus Singapore Pte Ltd
Nikos Kavalis is a founding partner of Metals Focus. He has over 20 years of experience in precious metals, having previously worked for the Royal Bank of Scotland and GFMS. Since September 2019, Nikos has been based in Singapore, where he also runs the local subsidiary of Metals Focus.

SBMA-Committee-khun nuttapong

Mr Nuttapong Hirunyasiri

CEO
MTS Gold Global Trading Pte Ltd
Nuttapong Hirunyasiri is the CEO of MTS Gold Group, one of Thailand’s top 10 companies and top 3 bullion companies. He started MTS Gold Group’s first overseas office in Singapore and has been expanding the group business internationally. He focuses on product development and innovation for gold investment, with the aim of being a leader in providing the full suite of gold investment services in the ASEAN region.

SBMA Committee-Photo-Raman-Walia

Mr Raman Walia

Executive Director, Head of Commodities Sales – APAC
JP Morgan Chase Bank N.A.

Raman is Executive Director and Head of Commodities Sales, APAC, for J.P. Morgan. He joined JPMorgan in 2008 in New York, moved to Singapore in 2011, and helped expand the precious metals business in the region. Raman has an MBA from Cornell University, and likes to travel in his spare time.

SBMA Committee-Photo-Andrew-Clarke

Mr Andrew Clarke

Head of Brink’s Global Services
Brink’s Global Services Pte Ltd

Andrew Clarke is the Head of BGS (Brink’s Global Services) for Singapore, Indonesia, Malaysia and Brunei. He has held various leadership positions throughout his career in secure logistics and risk management with Brink’s, which started in Hong Kong in 2010. Andrew relocated to Singapore in 2018 to expand the precious metals line of business along with Brink’s portfolio of services and industries.

SBMA Committee-Photo-Kazuya-Naoki

Mr Kazuya Naoki

Head of Metals, Asia
ICBC Standard Bank Plc, Singapore Branch

Kazuya (Kaz) Naoki is the Head of Metals, Asia of ICBC Standard Bank in Singapore and is responsible for the precious & base metals sales and trading in the region. He joined Standard Bank Plc Tokyo Branch in 2008 and was relocated to its Singapore Branch in 2013 whose controlling stake was acquired by the Industrial and Commercial Bank of China in 2015. Prior to joining Standard Bank, Kaz spent 11 years focusing on commodity trading and risk management with Mitsui & Co in Tokyo, Sydney and London. Kaz has been serving on the SBMA Management Committee since 2016.

SBMA Committee-Photo-Vinh-Nguyen

Mr Vinh Nguyen

Head of Precious Metals, Asia
StoneX APAC Pte Ltd

Vinh Nguyen joined StoneX Group in Singapore at the beginning of 2008 and responsible for its APAC precious metals activities since 2019 until now.

SBMA Committee-KL-Yap

Mr KL Yap

General Manager, Singapore Refining Business Unit
Metalor Technologies (Singapore) Pte Ltd
KL YAP is the General Manager of Metalor Technologies (Singapore) Pte Ltd’s Singapore Refining Business Unit. He joined Metalor in 2013, initially in Refining Sales. In 2014, he became Refining Business Unit Manager, leading the development of a new precious metal refinery. KL was Vice Chairman of SBMA from 2017 to 2021, now serving as Chairman. With a degree in business commerce, finance, and marketing, he brings prior experience from refinery and heavy industries.