Gold held at the Bank of England has been sold for exceptionally high premiums, indicating that central banks may be resuming market purchases.
Gold in the Bank of England’s London reserves, which is one of the world’s biggest, is kept and traded on behalf of other central and commercial banks rather than being held by the BOE. It frequently trades within a few pennies of other London vaults managed by commercial banks like JPMorgan Chase & Co.
According to bullion traders, gold sold by the BOE has traded for as much as 50 cents over benchmark London rates in the last week. These premiums are being driven, at least in part, by purchases from the Bank for International Settlements, which frequently trades the metal on behalf of the world’s central banks, according to a person with direct knowledge who did not want to be identified because the information is confidential.
According to one source, the BIS recently purchased up to 1 million ounces of BOE metal from various commercial banks at a premium of 30 to 40 cents. According to bullion dealers, the premium for gold at the BOE soared to as high as 50 cents an ounce late last week before falling off to around 20 to 40 cents. The dealers claimed that in normal conditions, the range would be zero to twenty cents.
A BIS representative declined to comment, citing client confidentiality as a reason. The BOE did not respond to a request for comment.
According to bullion dealers, the purchasing might indicate that one or more central banks are expanding their gold reserves.
Central banks supported gold price increases for most of the previous decade, but became net sellers in the third quarter of 2020 when certain nations profited from rising prices. Renewing purchasing might help bullion maintain its surge, which has regained all of its losses so far this year on Tuesday.
At least some central banks have returned to the market as purchasers after prices fell earlier this year. In the past, sovereign lenders have purchased gold to diversify their portfolios away from the dollar in order to protect their finances in the face of worries about the Federal Reserve’s ultra-loose monetary policy, excessive government spending, and inflationary pressures.
According to figures from the International Monetary Fund website, the Bank of Thailand increased its gold holdings to 6.35 million ounces this month, up from 4.95 million ounces in March. Hungary increased its gold reserves in March, in one of the most significant acquisitions by a central bank in decades. Global central banks were net buyers of bullion in February, according to data from the World Gold Council.