Brazil's Central Bank Buys 41.8 Tons of Gold to Bolster Reserves

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 largest purchase in a 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 institute had already acquired a further 11.9 tons. In two months, BC added 53.7 tons of gold to its reserves. Previously, BC had made its largest gold purchase in October 2012 when it acquired 17.2 tons of the metal. Reserves are crisis insurance. The foreign reserves, which amounted to US$ 352.5 billion at the end of June, serve as a kind of “insurance” against currency crises. The resources are now sufficient to cover the current commitments of the Brazil in dollars and, therefore, the country positions itself as a creditor in foreign currency.

Most of the reserves are made up of bonds convertible into dollars and dollars deposited with central banks of other countries, in the International Monetary Fund (IMF) and no Bank for International Settlements (BIS). At the end of 2020, this share reached US$ 332 billion, or 93.4 % of reserves. By comparison, the amount of gold at the end of last year was US$ 4.1 billion, or 1.2 % of the total.

With the purchase in June, the metal now represents 1.9 % of reserves. This does not represent a large percentage change in the resource distribution profile of the reserves, but it does mark a difference in the attitude of BC de Campos Neto compared to its predecessors. Between November 2012 and April 2021, BC hardly changed the gold reserves. Banco Alfa’s chief economist, Luis Otavio de Souza Leal, believes BC likely increased its gold purchases to diversify its asset portfolio with the aim of achieving greater stability.

“Although it is still a small part of the reserves, with this gold purchase he (BC) is increasing the part of his portfolio that will fluctuate less in the coming months. ”The new coronavirus pandemic had an impact on prices. In the midst of the crisis, central banks and even companies around the world went in search of the metal as a currency reserve.