Brazilian Central Bank buys 41.8 tons of gold to bolster reserves

RIO DE JANEIRO, BRAZIL – After years without substantially changing the amount of gold in its international asset reserves, the Brazilian Central Bank headed by Roberto Campos Neto bought 41.8 tons of the metal in June.

With this, the volume of gold that is held in the reserves jumped 52.7% in just one month, to 121.1 tons – equivalent to US$6.873 billion. The value of the June purchase was not disclosed.

It was the biggest purchase in one month since at least December 2000, when the current historical series compiled by the Central Bank on the profile of reserves began. In May, the institution had already bought 11.9 tons. In two months, the Central Bank has added 53.7 tons of gold to the reserves.

Before, the largest gold purchase operation by the Central Bank had been carried out in October 2012, when 17.2 tons of the metal were acquired.

The country’s international reserves, which at the end of June totaled US$352.5 billion, function as a kind of “insurance” against exchange rate crises.

The resources are enough today to cover Brazil’s current commitments in dollars and, for this reason, the country is categorized as a creditor in foreign currency.

Most of the reserves are formed by securities convertible into dollars and by dollars deposited in central banks of other countries, in the International Monetary Fund (IMF), and in the Bank for International Settlements (BIS).

At the end of 2020, this segment reached US$332 billion, or 93.4% of reserves. In comparison, the amount of gold at the end of last year was US$4.1 billion, or 1.2% of the total. With the June purchase, the metal is now 1.9% of reserves.

This does not represent a major percentage change in the allocation profile of reserve resources, but it marks a difference in the stance of Campos Neto’s Central Bank compared to his predecessors. Between November 2012 and April 2021, the Central Bank did little to change the volumes of gold in the reserves.

During this period, economists Alexandre Tombini, Ilan Goldfajn, and Campos Neto himself, starting in 2019, were in charge.

The chief economist at Banco Alfa, Luis Otavio de Souza Leal, says he believes that the Central Bank has probably increased gold purchases as a way to diversify its asset portfolio, with the aim of seeking greater stability.

“Although it is still a small part of the reserves, with this purchase of gold it (BC) increases a little the part of its portfolio that will oscillate less in these coming months.”

The pandemic of the new coronavirus had an impact on stock prices. During the crisis, central banks and even companies all over the world went in search of the metal as a reserve asset. This increased demand caused the troy ounce spot price at OTC Metals in the US to rise from $1,515.12 at the end of 2019 to $1,896.49 at the close of 2020 – a 25.2% advance.

The Central Bank declined to comment on the purchase.