Gold held at the Bank of England has been selling at an unusually high premium recently, signaling that central banks may return to market buying.
The gold in the London reserves of the Bank of England – one of the largest bullion vaults in the world – is held and sold on behalf of other central and commercial banks, rather than owned by the Bank of England itself. It usually trades within a few cents per ounce of gold held in other London-based vaults of commercial banks such as JPMorgan Chase & Co.
But last week, gold sold by the Bank of England was trading 50 cents above London benchmark prices, bullion traders said. These premiums are at least partly attributable to the purchase from The Bank for International Settlements, which regularly trades gold on behalf of the world’s central banks, said a person with direct knowledge and asked not to be named because the information is not publicly available.
According to one person, the BIS recently purchased about 1 million ounces of BOE metal from various commercial banks at a premium of 30 to 40 cents. The Bank of England gold premium rose to 50 cents an ounce at the end of last week, and then, according to traders, fell to 20-40 cents. According to traders, this compares to a range of zero to 20 cents under normal circumstances.
BIS did not immediately send an email and voicemail requesting comment.
The purchase could be a sign that one or more central banks are increasing their gold holdings, traders said.
Central banks helped sustain the rise in gold prices for much of the past decade, but switched to net sellers in the third quarter of 2020 as some countries capitalized on skyrocketing price increases. Resuming buying could help prop up Tuesday’s gold rally. recovered all of its losses this year. The metal is approaching its biggest monthly gain since July as investors worry about inflation and Federal Reserve officials signal stable monetary policy for now.
Since prices fell earlier this year, at least some central banks have returned as buyers. In the past, sovereign lenders have bought gold to diversify their portfolios against the US dollar to protect their finances amid concerns about the Fed’s super-soft monetary policy, huge US government spending, and inflationary pressures.
Last month Bank of Thailand boosted its gold holdings to 6.35 million ounces from 4.95 million ounces in March, according to data from the International Monetary Fund’s website. Hungary in March tripled its gold holdings in one of the largest central bank purchases in decades. World Gold Council data showed that the world’s central banks were net buyers of gold in February, led by India, which bought 11.2 tons.