CBK snubs gold as central banks scramble for metal

Kenya has moved away from buying gold for the country’s reserves as central banks and government agencies around the world stockpiled the precious metal seen as a safe-haven asset during times of geopolitical and economic turmoil.

Data from the Central Bank of Kenya (CBK) shows that the regulator held gold reserves worth Sh120.5m in June last year from Sh105.9m in 2021 and Sh105.6m in 2020.

This indicates that the amount of gold reserves in Kenya has remained unchanged, with the value rising as a factor of changes in the price of the precious metal in the global market.

Kenya’s unchanged gold stocks come at a period when central banks added 1,136 tonnes of the metal worth about $70 billion to their stockpiles in 2022, the highest rate in any year going back to 1950.

Central banks prefer gold because it is expected to hold its value in turbulent times, and unlike currencies and bonds, it is not dependent on any issuer or government.

Gold also enables central banks to diversify away from assets such as US Treasury bonds and the dollar.

In Kenya, gold accounted for 0.01 percent of the Central Bank of Kuwait’s reserves equivalent to one trillion shillings, which includes 933.5 billion shillings in currencies such as dollars and US Treasury bonds and 71.6 billion in International Monetary Fund currency and special drawing rights.

“Gold is a very good hedge when currencies lose value. Also, when inflation is a big threat, people move to gold because it maintains value,” said Mbowe Wagacha, former Chief Economic Adviser, Executive Office of the President, and Acting Central Bank Chief.

is reading: The central bank is seeking the identity of the main gold traders on the NSE

Holding a chunk of gold on your books can send positive signals to international investors at a time when currencies are under attack, according to Wahuru Ndoho, CEO of Euclid Capital and former director of Public Debt Management at the Treasury Department.

“The presence of gold will support the local currency and increase confidence among international investors,” said Mr. Nduho.

Although the amount of Kenya’s gold holdings has barely increased, its value has more than doubled in the past ten years. Central Bank of Kuwait data shows Kenya’s gold holdings rose from Sh59m in 2013.

Annual gold demand rose 18 percent last year to 4,741 tonnes, the most since 2011, driven by a 55-year high in central bank purchases, according to the World Gold Council (WGC), an industry-backed group.

Central banks stockpiled gold at a historic price in the second half of last year, in a move many analysts attribute to a desire to diversify away from the dollar after the United States froze Russian reserves denominated in the currency as part of its sanctions against Moscow.

Retail investors bought the precious metal in a bid to protect themselves from rising inflation.

The central bank’s purchases of gold amounted to 417 tons in the last three months of the year, nearly 12 times higher than the same quarter of last year.

Banks, including those in Turkey, China, Egypt and Qatar, said they bought gold last year. But the World Gold Council said about two-thirds of the metal bought by central banks last year had not been publicly announced.

Banks that have not regularly published information about changes in their gold stocks include China and Russia.

Gold does not produce a yield, which reduces its attractiveness to investors when interest rates on low-risk bonds rise.

However, demand from central banks and retail investors helped prevent the yellow metal from slipping further and paved the way for a strong rally since November.

Gold prices surpassed the key $2,000 level this week from $1,711 an ounce in November.

The World Gold Council expects a rebound in gold demand from institutional investors this year as interest rates in major economies near their peak while low inflation could dampen demand for bars and coins.

As a result of the central bank’s extraordinary buying and the expected return of inflows for gold-backed exchange-traded funds (ETFs), UBS raised its year-end target for the precious metal to $2,100 an ounce, up from the previous $1,850.

is reading: The Central Bank of Kuwait ended raising interest rates as inflation slowed

It is not clear where Kenya’s gold reserves are stored, but the world’s largest stockpile of gold – nearly $200 billion worth of gold – is inside the vault of the Federal Reserve Bank of New York.

Approximately 540,000 gold bars belong to 48 foreign central banks and 12 international organizations such as the International Monetary Fund or the Bank for International Settlements.

→ (email protected)