The Kazakhstan central bank is cutting the country’s gold share down to as low as half of its held reserves in an effort to replenish foreign currency reserves.

The central bank of Kazakhstan has an estimated $34.5bn (KZT15.34trn) of gold reserves held domestically, which makes up around 56% of the country’s reserves. The central bank aims to reduce this further to between 50% and 55%, having already sold 60.7 tonnes (t) in the first six months of the year. The bank will look to sell a further 12.7t in order to reach its target of maintaining a remaining 272t.

The Kazakh central bank told Bloomberg that it had made 108.8t of “gradual” gold sales to external markets, drawing as much as $7bn. This, it said, will help to “ensure balance in the allocation” of its reserves between gold bullion and foreign currency.

The bank added that shifting away from bullion will allow it to “replenish the foreign-currency part of the reserves, which is invested in highly liquid instruments in external markets”.

Kazakhstan is just one of a number of countries that used to be large-scale buyers of bullion but are now selling off much of their stocks. As much of 70% of the central bank’s reserve was comprised of gold bullion in 2022. Demand fell from central banks in the first quarter of 2023 by as much as 40% from the previous quarter. Much of this has been down to the monetary policy of the US Federal Reserve, to which much of the world’s gold market responds.

As the Federal Reserve’s easing of monetary policy supports gold prices, which reached as much as $1,972 per ounce last week, it will alter the central bank’s mentality towards sales and purchases of the precious metal.

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Earlier in July, Aliya Moldabekova, deputy governor of the Kazakh central bank, explained: “Gold continues to demonstrate high sensitivity to the Fed policy. Due to the expectation of a potential interest rate hike by the Fed in July, the price of gold decreased from $1,959 to $1,904 per ounce over the past month.”

“As a result,” Moldabekova continued, “we observed a decline in foreign exchange reserves to $34.5bn according to preliminary data. In addition to the decline in ‘gold’ quotations, the dynamics of gold reserves were also affected by a decrease in the volume of funds in foreign currency accounts of second-tier banks in the National Bank and payment of public debt.”

In 2011, gold made up only 10% of Kazakhstan’s reserves and at the time the government told the central bank to prioritise the securing of domestic gold products. Kazakhstan is the 13th-largest gold producer in the world, accounting for an estimated 2% of global production.