By Clement Bigot, investor and consultant in international relations – October 5, 2021

The Central bank of Poland plans to buy even more gold for its reserves to increase its financial security. The head of the central bank spoke in a recent article about his plans to increase Poland’s gold reserves in the coming years.

As of the end of August 2021, Poland’s official gold reserves amounted to 230.2 tons. Recently, the Polish Central Bank has been constantly buying gold. In an article released in September 2021 for the Polish newspaper Do Rzeczy, the head of the Polish Central Bank (NBP), Adam Glapiński, explained his strategy for gold.

The Polish central banker said :

“Gold is the best asset for international reserves. It diversifies geopolitical risks and serves as a kind of anchor of trust and confidence, especially in times of tension and crisis. Therefore, continuing our current policy, we will try to increase our gold resources, but the size and pace of purchases will depend, inter alia, on the dynamics of changes in official foreign reserves and current market conditions.”

Since gold usually rises amid increased risk of financial or political crises, the yellow metal is viewed by investors in this case as a “safe haven”. As a result, gold has relatively low correlation with major asset classes – especially the US dollar, which dominates the Polish Central Bank’s reserve portfolio. This has a positive effect on the diversification of financial risk.

Poland attaches great importance to storing a significant part of its gold in its own territory. Currently, the vaults of the Polish Central Bank hold 8,392 gold bars with a total weight of 104.9 tons. The rest (125.4 tons) is located abroad, mainly in “dedicated accounts” at the Bank of England, as Adam Glapiński calls it.

From September to November 2019, 100 tonnes, i.e. 3,214,100 troy ounces of gold, were transported to Poland. In total, there were eight transport operations, each with 1000 people involved in it. The gold was transported to Poland by specially chartered planes and delivered to the airports in Warsaw and Poznań. 

The Central Banker further explained:

It is worth noting that the Bank of England not only offers storage of gold bars, but also organizes a market for their trade – in addition to the National Bank of Poland, most companies operating in the gold market also have accounts, thanks to which our resources can be actively invested, for example, in the framework of the so-called placement transactions.”

“The gold accounts held by the People’s Bank of Poland with other partners are also used for investment purposes, but the balances on these accounts represent a very small percentage of the gold reserves. This variety of gold deposits not only fits well with the practice of central banks, but also allows flexible management of gold resources, while reducing the cost of storing gold. “

What we can understand by these words : not all gold held in foreign accounts at the Bank of England is physically available (immediately). Some of them are paper gold, that is, legal requirements for pure gold. It is interesting to hear it from a high-ranking official, such as the Chairman of the Central Bank of Poland.

The gold resources held by the National Bank of Poland are almost twice as large as in Sweden (126 tons), similar to Belgium (227 tons) and slightly smaller than in Austria and Spain (280 tons).

As a component of official reserve assets, NBP gold bars meet the international standards of London Good Delivery purity . The NBP gold stored in the Bank of England is kept for the so-called allocated account , i.e. each bar assigned to an NBP account is uniquely identifiable, has a unique serial number and refiner mark. 

China and Russia have also been buying since 2014 physical gold to increase their reserves and secure their monetary and financial situations. According to the World Gold Council, Central banks were net buyers of 199.9 tons of gold in Q2 2021 with the largest purchases by Thailand, Hungary and Brazil.

Having significant foreign exchange reserves – in particular physical gold reserves – increases the confidence in the country – as judged by rating agencies, foreign investors and international institutions. This has an impact on lowering the cost of financing on markets and reduces the risk of a sudden outflow of capital from the country. Gold also strengthens the power of the national currency and secure the well-being of the national economy.

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© Copyright 2021  – Clement Bigot, investor and consultant in international relations.