Gold stored at the Bank of England has been trading at an unusually low price, typically a sign that central banks are shedding some of their holdings.
The Bank of England contains 5,676 tons of gold, one of the largest stockpiles in the world, which it holds on behalf of other central and commercial banks.
In normal gold trades, spreads are usually quite tight, bought and sold between large institutions in bilateral trades at prices typically within just a few cents of the market rate, but in recent days, gold at the Bank of England has traded at spreads of as much as a dollar an ounce beneath benchmark London prices.
Such spreads typically occur when there is strong selling pressure for gold, for instance, a central bank selling a sizeable amount of gold reserves to raise dollars or other currencies.
The Russian invasion of Ukraine and the freezing of Russian foreign assets has also made more central banks eager to ensure they have a base of foreign reserves outside of the dollar.
But the recent strength of the greenback has put many central banks in a
Catch-22 as they need the dollar to shore up their own currencies to prevent imported inflation from making domestic price pressures worse.
Therefore, many emerging economies whose governments were big buyers of gold are now having to unwind those holdings to strengthen their national currencies.
In contrast, the Reserve Bank of India stepped up its gold purchases. The share of gold in the total foreign exchange reserves rose to 7% at the end of March 2022, an increase from 5.88% as compared to six months ago. At the end of March, RBI held 760.42 metric tonnes of gold (including gold deposits of 11.08 metric tonnes).
Also after the invasion of Ukraine, the western nations have crimped Russia's ability to use its vast dollar reserves to support the Rouble. In this scenario, having gold reserves helps.