Magyar Nemzeti Bank (MNB), Hungary’s central bank, just raised its gold reserves by more than tenfold this month – from 3.1 tonnes to 31.5 tonnes.
The amount of money spent on the 2,300 gold bars has not been disclosed yet, although a rough estimate can be drawn from recent gold rates. Current market values for one ounce of gold range anywhere from $1190 to $1230. At these prices, the transaction is claimed to be around $1.24 billion.
This is the first time that Hungary has bought gold since 1986. The country’s gold reserves had peaked around 65 to 70 tonnes in the early 1970s before it was shaved down to 10 tonnes in 1989 followed by another drop of 7 tonnes down to 3 tonnes.
Fearing geopolitical unrest, the central bank decided to transfer some gold back to serve as a hedge. According to the bank’s governor, Gyorgy Matolcsy, the decision was of “economic and national strategic importance.”
Hungary wants to keep up the pace with international norms of acquiring precious metals such as gold and silver to strengthen their positioning in the market. MNB tried to justify this purchase by bringing up Hungary’s extensive history for being known as one of the world’s largest gold producers several centuries ago, although analysts describe this as a political move to assert dominance in the region.
Analysts describe MNB’s spontaneous decision to increase gold reserves as a radical, almost illogical move. To quote Timothy Ash of Bluebay Asset Management, “It’s a strange move, a big increase and seems quite high.”
The bank’s vice president reported that gold’s share in the national bank’s reserves now make up 4.4 per cent. This figure is in conformity with the average for Central and Eastern European countries specific to non-eurozone countries. Other countries possess higher shares of gold reserves, two prominent examples are Romania at 10% and Slovakia which has well over 25%.
The biggest stock of gold is held by Poland and Romania, standing at 112 tonnes to 103 tonnes respectively. But this number is just a drop in the bucket when contrasted against 8000 tonnes of gold held by US, which ranks 1st.
A Surprise Move
The new gold purchase has been described by analysts as a surprising but ‘interesting’ move. But going by recent trends shown by updated data from IMF, most countries are also following in this trend. Some high profile gold acquisitions include those of Germany, Austria, Poland, Netherlands and most recently Hungary.
Poland in particular, has been continuously increasing its gold purchases, raising its holdings to 117 tonnes, acquiring two tonnes in July, seven tonnes in August and following it up by 4.4 tonnes in September.
High profile gold repatriation ‘exercises’ have grown to become the norm among central banks in Europe because, to quote MNB, “Gold is one of the world’s safest assets.”