Saudi Arabia has joined other Asian countries in throwing away their long-standing sensitivity to the gold price, with evidence suggesting the Saudi central bank has contributed to the current gold bull run by covertly buying 160 tonnes of gold from Switzerland since the start of 2022.
Although Saudi Arabia played a key role in the birth of the global dollar standard in the early 1970s, this time they may even be the key to the disintegration of the dollar standard.
Saudi Arabia's gold demand falls when gold prices rise and rises when gold prices fall. This has suppressed volatility in the gold market, which has been dominated by the West for decades. But since the West froze Russia's dollar assets in February 2022, countries with diplomatic differences with the West have increasingly exchanged dollars for physical gold. Saudi Arabia is another country after China and Thailand that has been found to have transformed from a price-sensitive country to a price-driver.
Saudi Arabia has been a net importer throughout the gold rally from late 2022 to now, which has pushed up gold prices. The icing on the cake is that some of the gold that flows into Saudi Arabia, that is, the gold from Switzerland, actually flows into the Saudi Arabian Monetary Authority (SAMA), the central bank of Saudi Arabia.
Industry insiders claim that SAMA has been accelerating its secret gold purchases since 2022. By comparing the World Gold Council's (WGC) estimates of total central bank purchases with the purchases reported by central banks to the International Monetary Fund (IMF), it can be concluded that "unreported" gold purchases have soared since 2022. People familiar with the matter revealed that this is largely due to the People's Bank of China, and SAMA also has a certain degree of influence. This is the first clue.
Since gold exchange-traded funds (ETFs) are almost non-existent in Saudi Arabia, SAMA purchases can be estimated by comparing net gold imports with local consumer demand. Not coincidentally, SAMA’s net imports began to consistently exceed consumer demand in the second quarter of 2022, after the outbreak of the Russian-Ukrainian conflict. It can be seen that SAMA was and is eager to obtain physical gold.
Sources said the central bank often buys gold in Switzerland and London and has bullion banks package it and ship it to where the central bank wants it. In this way, it appears in cross-border trade data because bullion banks have to deal with customs. Subtracting Saudi consumer demand from Saudi Arabia's net gold imports and comparing the result with Switzerland's total exports to Saudi Arabia shows that SAMA has been quietly buying gold in Switzerland since the second quarter of 2022.
Data shows that SAMA has bought around 160 tonnes of gold in recent years. While it is impossible to know how much gold it holds in total, partly because Saudi gold trade data only begins in 2015. What happened before that is debatable, and there is no way to know how much additional gold SAMA may have bought elsewhere, but one thing is certain: Saudi Arabia has a lot more gold than it would like the world to believe. The last time the Saudi central bank updated its official gold reserves was in February 2008, when it announced that it held 332 tonnes of gold, an increase of 180 tonnes from January 2008, but SAMA obviously didn't buy 180 tonnes in a month.
The figures published by SAMA are purely political. The Saudi royal family hides how much gold the country actually has to avoid publicly upsetting the US. But the evolution of Asian countries storing more and more of their trade surpluses in gold is clear. In addition to SAMA’s 160 tonnes, the People’s Bank of China is thought to have bought 1,600 tonnes of gold since the Russian-Ukrainian conflict. These two central banks – the former of the most influential country in the oil market, the latter of the world’s second-largest economy – are confident in the direction of the gold market.
Article forwarded from: Jinshi Data
