Yesterday, the Hungarian central bank announced it recently boosted its gold reserves 10-fold.
According to its website, the National Bank of Hungary (MNB) now owns 31.5 tons of gold, up from 3.1 tons. It was the first significant purchase of gold by Hungary since 1986.
A statement by the bank said the increase in gold stocks was intended to increase financial stability and strengthen market confidence.
“In keeping with the historical role of gold, it remains one of the safest instruments in the world, which, even under normal market conditions, exposes its stability and confidence.”
The bank emphasized that stability goals drove its decision to buy gold, and it isn’t merely a short-term investment.
“Gold also has a confidence-building effect in the normal period, that is, it can play a role in stabilizing and defending it not only in the extreme market environment, structural changes in the international financial system or in deeper geopolitical crises. Gold is still considered to be one of the safest assets that can be attributed to unique properties such as the finite supply of precious metal, which is not linked to credit and counterparty risk, since gold is not a claim against a specific partner or country.”
As GoldMoney head of research, Alastair Macleod, told qz.com, “gold is no one else’s liability.”
The National Bank of Hungary also brought its gold home. Last March, the central bank announced it planned to repatriate its existing gold holdings from London. According to the MNB, it completed the repatriation this month.
“The role of gold reserves in the nation and economy strategy is becoming more and more appreciated while both the possession and the increase of the precious metals nationwide appear to be a decisive international trend.”
Hungary is the second Eastern European country to buy gold this year. The Polish central bank added about seven tons of gold to its reserves in July and another two tons in August, according to International Monetary fund data. It was the largest gold purchase by Poland since 1998.
A number of countries have been buying gold in recent months to diversify reserves and minimize their exposure to the US dollar. Central banks have bought a total of 264 tons of gold this year with Russia leading the way. According to the IMF, central bank purchases accounted for 10% of gold demand through the first half of 2018.
The Russian central bank added 26.1 tons of gold to its hoard in July alone. Russian gold reserves increased 224 tons in 2017, marking the third consecutive year of plus-200 ton growth. In February, Russia passed China to become the world’s fifth-largest gold-holding country. (China has not officially added to its reserves since 2016, but many speculate the Chinese might secretly stockpiling the yellow metal as well.)
Kazakhstan and Turkey have also been big buyers. Other countries adding to their gold reserves include Egypt, Indonesia, the Kyrgyz Republic, Mongolia, the Philippines, Serbia, Surinam and Tajikistan.
World Gold Council managing director of central banks and public policy Natalie Dempster said countries may be buying gold with expectations that the global monetary system is shifting away from the US dollar. Last month, the EU announced it will create a special payment channel to circumvent US economic sanctions and facilitate trade with Iran.
We’ve been reporting on efforts by countries like Russia and China to limit their dependence on the US dollar and set up alternative systems outside of the global dollar system, along with the growing number of central banks buying gold as a way to diversify their holdings away from the greenback. The EU’s move to set up a new payment system indicates that even traditional American allies have grown weary of the US using the dollar as a weapon.