Robert Harneis –TDO-(FRANCE)- For the first time since 1986, Hungary’s central bank is buying gold and bringing it home.
Hungary has increased its gold reserves tenfold to 31.5 tons in an effort to make the reserves safer and reduce risks, central bank governor Gyorgy Matolcsy announced at a news conference on in Budapest. It not only dramatically increased its reserves but also repatriated the gold from the Bank of England to Budapest due to concerns about "financial stability".
Mr. Matolcsy said the decision was of “economic and national strategic importance,” and that the decision had been made after Hungarian premier Viktor Orban requested a year ago that the bank assess its gold strategy. According to the bank’s vice-president Marton Nagy, gold now accounts for 4.4 per cent of the national bank’s reserves, on par with the average among the European Union’s eastern members.
Central banks in Europe are diversifying into gold or moving to repatriate and take possession in country. Hungary and Poland are the most recent central banks to do this but they follow in the footsteps of Turkey, Austria, Netherlands and the powerful German Bundesbank all of which have been repatriating their gold from the Bank of England and the Federal Reserve in recent months and years.
"Gold is still considered to be one of the world's safest assets," in the words of the Hungarian central bank.
This view is shared by the President of the ECB Mario Draghi who in February 2013 spoke about how "gold is a reserve of safety" which “gives you a value-protection against fluctuations against the dollar.”
However Central bank gold reserves remain very small versus the scale of their massive foreign exchange holdings and their significant exposure to the vulnerable dollar in particular but also the euro and other fiat reserve currencies.
Zero Hedge commented ‘The trend of more and more central banks increasing their gold reserves is set to continue and will likely intensify given the degree of geopolitical and financial uncertainty and tensions in the world - between both adversaries and increasingly between hitherto allies’.
Poland recently raised its gold holdings to the highest in at least 35 years, according to the International Monetary Fund. The country increased its holdings by 4.4 tonnes from August to about 117 tonnes in September, a record, according to data going back to January 1983.
China and Russia have been buying gold and Russia now holds more than China.
According to the latest IMF data, Turkey’s total gold reserves are at a record high level and estimated at 596 tons in May, and worth just under $23 billion, rising 40% over the past year. This makes Ankara the 11th largest gold holder, behind the Netherlands and ahead of India. All of the country’s gold has now been repatriated from New York and is stored in Istanbul except for around 19 tons held at the Basel-based Bank for International Settlements. President Erdogan suggested at the G20 meeting last year that international loans should be denominated in gold rather than dollars.
The background to all these moves into gold is the very real risk that the dollar could be greatly devalued in the coming years as U.S. budget deficits surge again and Trump's ballooning of the U.S. national debt becomes a concern. At the G-10 Rome meetings held in late 1971 US Finance Secretary John Connally famously told European Finance Ministers, “The dollar is our currency, but it’s your problem,”. A 20% devaluation of the dollar followed shortly afterwards. Countries have also been concerned about the security of their gold reserves and the risk that the if they were held abroad they could be seized or used as security.