Central Banks Add More Gold To Their Reserves While Dumping U.S Treasuries

As the world continues to deal with the coronavirus and more and more economies fall into a state of collapse, central banks continued on their gold-buying spree in February while they dumped U.S treasuries at record speed.

Zerohedge posted this fantastic chart this morning: 

Central Banks globally added another 36 tons of gold to their reserves in February, which was about 33% higher than January’s totals. This year, central banks have bought a total of 64.5 tons of gold. 

Februarys noteworthy buyers were: 

  • Turkey = 24.8t
  • Russia = 10.9t
  • Kazakhstan = 1.8t
  • Qatar = 1.6t

It interesting to note, as gold demand continues to be strong from central banks around the world, the same thing can’t be said for U.S treasuries. During the month of March, there was a complete fire sale of Treasuries by foreign governments and central banks. Foreign holders of treasuries dumped more than $100 billion in three weeks to March 25, which represents the biggest monthly drop on record. 

Now you might be wondering, who is supporting the U.S bond market? Well, it’s the Federal Reserve who is printing money at unprecedented speeds. The Fed has committed itself to buy unlimited amounts of treasuries this year as the U.S treasury is set to issue trillions of dollars of extra debt to fund a historic stimulus program. Analysts are expecting the Fed to be the top buyer of U.S treasuries with projections of purchasing $2 trillion this year, a record. 

One of the many reasons why foreign central banks might be selling their Treasury holdings could be due to fears of the US dollar being rapidly debased in the coming years via inflation, which of course, would destroy the value of their treasury holdings.

This could explain the persistent demand for gold over the last decade. In 2019, central banks purchased 650.3 tons, which represents the second-highest total of annual purchases for 50 years, which was just slightly below 2018 net purchases of 656.2 tons. According to the World Gold Council, 2018 was the highest level of annual net central bank gold purchases since the end of the Bretton Woods system in 1971.