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Looking past Turkey's gold sales, central banks continued to buy gold in May

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(Kitco News) - Unprecedented domestic demand for gold continues to impact Turkey's official reserves as the central bank sold significant amounts of the precious metal in May, going against the prevailing trend in the marketplace, according to the latest report from the World Gold Council.

In a report published Wednesday, Krishan Gopaul, senior analyst for the World Gold Council, said central banks sold 27 tonnes of gold in May. This comes after 69 tonnes of gold flowed from global reserves in April.

Although central banks were net sellers last month, Gopaul noted that Turkey's central bank primarily drove this trend. According to the WGC, it sold 63 tonnes of gold last month.

"Since March, the central bank has sold nearly 160t, equivalent to its cumulative purchases over the preceding 12 months," Gopaul wrote in the report. "Excluding Türkiye's sales, the positive trend in central bank buying continued."

Gopaul noted that specific factors are driving Turkey's gold sales this year. The nation has seen crippling levels of inflation, and consumers have been buying gold to protect their purchasing power.

The central bank has been forced to sell its gold to meet domestic demand, as the government has taken steps to curb gold imports to keep its trade deficit under control.

Turkey has seen inflation fall for the last eight months, but it remains extremely elevated, rising 38.2% in the last 12 months as of June.

Other net gold sellers included the Central Bank of Uzbekistan, which sold 11 tonnes of gold, while the National Bank of Kazakhstan reduced its gold reserves by 2 tonnes, and Germany's central bank also sold 2 tonnes of gold in May.

"Selling by banks who buy gold from domestic production – such as Uzbekistan and Kazakhstan – is not uncommon, while Germany's sale is likely related to its coin-minting program," Gopaul said.

On the purchasing side, the National Bank of Poland led the gold buyers last month, increasing its reserves by 19 tonnes. The latest purchases push Poland's gold reserves to a record high of 263 tonnes.

Meanwhile, the People's Bank of China bought more gold for the seventh consecutive month, increasing its reserves by 16 tonnes in May. Singapore's central bank bought 4 tonnes of gold. India's central bank, the Czech Republic, and the Kyrgyz Republic each increased their gold reserves by two tonnes.

Gopaul also noted that Russia increased its gold reserves by 3 tonnes; however, he added that Russia's National Wealth Fund has reduced its gold holdings by 37 tonnes since the start of the year.

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"There is little publicly-available information around this activity, but suggestions are that the sales of gold (and yuan) have been used to finance the budget deficit," he said.

Gopaul also confirmed earlier reports that Iran's central bank bought more than 2 tonnes of gold in May.

Looking past Turkey's impact on central bank gold demand, analysts have said that consistent central bank purchases will continue to support gold prices through 2023.

"Central banks are buying gold because they want diversification in their reserves relative to the U.S. dollar. That is going to be an ongoing trend. It's not just a 2023 event," said Douglas Groh, Managing Partner at Sprott, in a recent interview with Kitco News. "Central bank demand really pushes up the floor for gold."

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