Central banks are ditching the US dollar for gold

First-quarter gold purchases by central banks, led by Russia and China, were the highest in six years as countries diversify their assets away from the US dollar.

Global gold reserves rose 145.5 tonnes in the first quarter, a 68 per cent increase from a year earlier, the World Gold Council said Thursday in a report. Russia remains the largest buyer as the nation reduces its US Treasury holdings as part of a de-dollarization drive.

“We’ve seen a continuation of the strong demand from central banks,” said Alistair Hewitt, head of market intelligence at the World Gold Council. “We’re expecting another good year for central bank purchases, although I’ll be pleasantly surprised if they are to match the level seen in 2018.”

As well as regular buyers such as Kazakhstan and Turkey, the first quarter also saw Ecuador adding to its reserves for the first time since 2014, plus sizable purchases by other countries like Colombia, the council said. The buyers are dominated by countries looking to reduce their dollar dependency, and are typically nations with a lower share of reserves in gold than Western European countries.

Central bank purchases have been a key support for gold, helping to offset lower demand from bar and coin investors as well as from industrial users of the metal. Gold has climbed almost 8 percent since the end of September, and was trading at about $1,282 an ounce in London on Wednesday.

Inflows into exchange-traded funds backed by gold during January have been wiped out over the rest of the year, with ETF levels now at their lowest in four months.

On the supply side, the World Gold Council revised its estimates for the contribution of small-scale, “artisanal,” miners, following a reassessment by its primary data provider Metals Focus Ltd.

The sector is estimated to account for 15 to 20 per cent of global gold mine production.

In countries such as Zimbabwe, small-scale miners account for more than half the gold production and are a vital part of the economy.

Under new guidelines from the London Bullion Market Association, such miners may have a tougher time selling their gold legitimately because some of their haul could be classified as “blood gold” – produced outside any safety or environmental rules and possibly contributing to such crimes as child labour and slavery.