Central bank demand has been a key factor driving the precious metal’s unprecedented rally this year. However, an important question remains: Who is buying all this gold?

While most of central bank gold purchases are reported to the International Monetary Fund, a large portion remains undeclared. In the second quarter, the World Gold Council said 67% of central bank estimated gold purchases were unreported. In the first half of this year, central banks bought a record 483 tons of gold.

Saudi Arabia may be the main buyer of the undeclared gold purchases, according to one analyst.

In a recent report, Money Metals precious metals analyst Jan Nieuwenhuijs speculated that Saudi Arabia has stockpiled around 160 tons of gold since 2022.

He pointed out that Saudi Arabia's gold imports have traditionally been sensitive to price increases. In the past, when gold prices rebounded, the country's gold imports would fall sharply, or even increase gold exports.

However, Saudi gold imports have been rising steadily since 2022.

Nieuwenhuijs said: "Since the West froze Russia's dollar assets in February 2022, countries that have diplomatic differences with the West have increasingly exchanged dollars for physical gold. After China and Thailand, I found that Saudi Arabia's cross-border trade statistics also show that the country has transformed from a country sensitive to gold prices to a driver of gold prices."

He noted that Saudi gold imports are also consistent with the World Gold Council's estimates of growing unreported gold purchases.

In an interview with Kitco News, Nieuwenhuijs said it is not surprising that Saudi Arabia remains silent about its gold reserves because it remains an ally of the U.S. Saudi Arabia does not want to push up the price of gold too much because that would make it “worth it” when it buys gold in the future.

Many analysts point out that when China begins an 18-month gold-buying spree in November 2021, the Chinese government is putting the United States and Western countries on notice that the dollar's status as the world's reserve currency faces some competition.

Political analysts point out that since the United States weaponized the dollar against Russia over the Russia-Ukraine conflict, a line has been drawn between its allies and opponents. Saudi Arabia is right in the middle of this line.

Back in the 1970s, Saudi Arabia helped establish the “petrodollar,” where all oil transactions are conducted in U.S. dollars. Nieuwenhuijs noted that military cooperation between the U.S. and Saudi Arabia has been going on since then.

However, Saudi Arabia's ties with the West have weakened in recent years after the Middle Eastern country became a member of the BRICS trading bloc.

"Saudi Arabia and the United States have a very long-standing diplomatic relationship. So it is difficult for it to break that relationship overnight, but it has to do it gradually," Nieuwenhuijs said. "Of course, Saudi Arabia still invests a lot of its surplus in U.S. Treasuries, but it also buys a small amount of gold."

As for how Saudi Arabia is secretly buying gold, Nieuwenhuijs, using anonymous sources, speculated that the kingdom is working with so-called “bullionbanks” to make the purchases.

“Central banks often buy gold in Switzerland and London and have bullion banks package and ship the gold to wherever the central bank wants. This way, it shows up in cross-border trade data because bullion banks have to deal with customs,” he said in the report. “To see if the Saudi Central Bank is buying gold bars in Switzerland, I subtracted Saudi consumer demand from Saudi net imports and compared the result (gold imported but not sold to consumers) to total Swiss exports to Saudi Arabia. The results show that the Saudi Central Bank has been quietly buying gold in Switzerland since the second quarter of 2022.”

According to some analysts who did not speak to Kitco News publicly, it is difficult to verify Nieuwenhuijs’s hypothesis because bullion banks traditionally ship gold in 1-kilogram bars, while central banks deal in larger 14-kilogram bars, the standard recognized by the London Bullion Market Association.

It is not unprecedented for central banks to be secretive about their gold purchases. Nieuwenhuijs noted that the Saudi Monetary Authority last updated its official gold reserves in February 2008. At that time, its reserves increased by 180 tons to 332 tons. "Obviously, the Saudi Central Bank is not buying 180 tons in one month," he noted in the report.

China is another country known for its secretive gold hoarding. In April 2009, the People's Bank of China announced it had purchased 454 tons of gold over a six-year period. In 2015, the central bank said it had bought 604 tons of gold over a three-year period. Although China paused its gold purchases earlier this year, many analysts speculate that it is still quietly continuing to buy.

Nieuwenhuijs said that while the U.S. dollar has indeed faced increasing competition for its status as the world’s reserve currency in recent years, it is not surprising that Saudi Arabia has kept its gold reserves secret because there is so much uncertainty in the economy.

He also noted that there has been a lot of speculation surrounding the potential development of a common currency among the BRICS countries, but that this is unlikely to happen anytime soon. Nieuwenhuijs believes that the BRICS countries don’t actually have much in common with each other.

In Nieuwenhuijs' view, Saudi Arabia's accumulation of gold is to hedge against unknown economic events. He said: "I don't think Saudi Arabia is using planes to transport gold back and forth to settle trade. I think Saudi Arabia is in the early stages and is just accumulating gold because it will eventually become part of the new system, which will hurt the dollar."

The article is forwarded from: Jinshi Data