Poland makes first gold purchase in 20 years

Poland increased its gold reserves by over nine tonnes of gold, becoming the first EU member to buy the ore this century, Financial Times reports.

Click here to read an analysis from Poland in English.

According to Financial Times, Poland bought over nine tonnes of gold – two in June and seven in August. It is the first EU member to do so since 1998.

The purchase means that Polish gold reserves augmented from 103 to 112.3 tonnes. All are placed in the vaults of the Bank of England in London, UK.

The value of this purchase has been assessed at approximately PLN 1.4 bn (roughly EUR 328 mln).

Analysts from Macquarie Group, quoted by Financial Times, report that currently gold is purchased by central banks which seek to diversify their reserves and move away from the US dollar.

Globally, 264 tonnes of gold have been acquired by central banks this year alone, with Russia, Turkey, and Kazakhstan dominating the market – the three countries purchased a total of 226 tonnes.

“Taken at face value it suggests the gold’s appeal to central banks might be widening,” Macquarie analysts said.

While Poland’s National Bank (NBP) has not yet made any official comment on the purchase, the reasons for the new international gold-rush are suggested as being related to the recent rise in US bond yields and the strengthening of the US dollar, resulting in the decline of gold prices. They have fallen by 10 percent since the beginning of the year, meaning the value of the Polish reserves from before the transaction fell by PLN 1.9 bn (EUR 444 mln).

According to NBP, as of Friday the price of gold in Poland is just over PLN 139 (EUR 45.1) per gramme.

However, while gold’s drop in value means it is losing its appeal to individual investors, gold constitutes an increasingly attractive alternative for central banks, the Macquarie Group reports.

source: FINANCIAL TIMES, RZECZPOSPOLITA

Comment:

Poland’s central bank often makes a profit on its activities, in which its governors can opt to be paid out as a dividend to the state budget.

The National Bank of Poland holds reserves in a basket of currencies and can also buy up or sell bonds in order to maintain the stability of the currency. One board member responsible for managing its holdings once boasted of being the manager of the largest asset management fund in the country.

In 2016 revenues topped up the budget by PLN 8 bn (EUR 1.9 bn), but with the foreign exchange markets working against the bank in 2017, there was no repeat of that dividend payment.

Holding around 100 tonnes of gold in the vaults of the Bank of England, Poland has given itself the option of being able to trade the metal on the London markets, which it would not have if the reserves were kept in Warsaw. Trading gold has to be part of the asset management strategy of a large entity.

Gold is often a store of value when markets turn sour. Purchasing at a low value seems prudent. As central bankers are not known for acting on a whim, the rest of us may only come round to the same view once it is too late.


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