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Central and Eastern European central banks are buying up gold, citing 'rapid structural changes in the global economy' - WGC

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(Kitco News) After several large gold purchases by Poland and Hungary, the Central and Eastern Europe region now accounts for 17% of total global central bank gold purchases over the last three years, according to the World Gold Council.

"Decisions to purchase gold were strategic in nature, taking into account the rapid structural changes in the global economy, such as shifts in the international financial system and global consequences of the pandemic," said Tatiana Fic, director of Central Banks and Public Policy at the World Gold Council.

In March, Hungary's central bank tripled its gold reserves to a historic high of 94.5 tonnes. This comes after the country's 10-fold increase in gold holdings in Q4 of 2018.

The next on WGC's list is Poland, which also increased its gold holdings dramatically over the last three years. The National Bank of Poland bought 25.7 tonnes in the second half of 2018, and then another 100 tonnes in the second quarter of 2019. The latter purchase is still the largest global single gold purchase of the last decade, noted Fic.

"The strategic decision by the NBP to more than double its reserves was driven by the bank's objective to diversify the geopolitical risk and strengthen the buffer protecting the country's financial stability," she wrote on Monday.

Serbia has also made headlines with its more gradual gold accumulation, as it added around 0.2 tonnes of gold per quarter since 2011. In 2019, the pace of purchases accelerated with a 9.2 tonnes acquisition in Q3 of 2019 and then another 3.5 tonnes in Q4 of 2020.

"The key driver behind these purchases was to shore up the stability of the Serbian financial system during a time of uncertainty and to guard against the heightened risk of a global crisis," Fic said.

She added that the increased interest in gold from the Central and Eastern Europe region would not end here.

"NBP Governor Glapinski has recently announced that Poland may buy another 100 tonnes of gold over the next couple of years. Serbia, if it continues its policy of gradual acquisition of gold, may also continue adding small amounts of gold to its reserves. Thus, the CEE region may continue to be an important center for central bank gold activity in coming years."

The COVID-19 pandemic will continue to be an important trigger for wanting more exposure to gold as the Central and Eastern European central banks look for protection.

"The unprecedented response of monetary and fiscal policies to the pandemic has resulted in sharp increases in government debts and rising inflationary pressures, bringing to the fore the role of gold as a safe haven and a long-term store of value," Fic explained.

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