BoG starts domestic gold purchases as reserve

The Bank of Ghana (BoG) has launched a special programme to purchase gold from local producers to help shore up the country’s gross international reserves (GIR).

The first of its kind, the central bank is hopeful that the initiative will help double its gold holdings in the GIR in the next five years to help foster confidence in the local currency, enhance currency stability and create a more attractive environment for foreign direct investments to spur economic growth.

The bank also expects to leverage the increased gold holdings to raise cheaper sources of funds to provide short-term foreign exchange liquidity for the economy.

It comes at a time when the bank’s gold holdings has remained static at 8.77 tonnes for 15 years, although the country has been producing gold for more than a century, becoming the lead producer in Africa in 2019.

Central banks of developed countries such as the United States of America, the United Kingdom, Germany and other European countries, keep part of their reserves in the precious metal as a store of value and buffer for their currencies.

Some investors also do that as a hedge against currency depreciation, the tumbling of markets (shares prices).

Historic

The Governor of the BoG, Dr Ernest Addison, said at the launch in Accra yesterday that the initiative was historic, as it marked the first time the central bank was embarking on domestic gold purchasing to augment its foreign reserves.

He said it also marked a significant change in the modus operandi of the bank’s foreign exchange reserves management operations, adding that the programme promised to revolutionarise the small-scale mining sector in the country.

Dr Addison said it was ironical that Ghana was not an active buyer of gold, in spite of mining gold for centuries.

He said the central banks of countries such as the United States of America, Turkey, India, Russia, the United Arab Emirates, Qatar, Colombia, Cambodia, among others, were reaping the full benefits for being active gold purchasers and Ghana could no longer remain on the fence.

Benefits

“Ghana’s domestic purchasing programme for gold has the potential to improve the small-scale gold mining sector by guaranteeing that they receive a fair purchasing price for their gold, provide an incentive to formalise and move away from damaging environmental and social practices.

“It will also lead to a route to formalise and improve ability to sell into formal gold markets and thereby reduce their vulnerability to illegal actors in the domestic and international gold supply chains,” he said.

Dr Addison added that the bank viewed the gold acquisition programme as an efficient way of growing the foreign exchange reserves of the country to supplement the traditional ways that it had built reserves over the years.

Modalities

Explaining the modalities of the programme, Dr Addison said the programme would enable the BoG to buy domestically produced gold from selected gold aggregators and mining firms and pay in the local currency at the prevailing market prices.

He said the BoG could also buy dore gold (unrefined gold) from a London Bullion Market Association (LBMA)-certified gold aggregator for its quality and value to be determined, technically known as assay, by the Precious Minerals Marketing Company (PMMC), — the national assayer.

“Upon going through a satisfactory assaying process, the PMMC will submit an assay report to BoG on the day of delivery. Using the agreed pricing sources for gold and the cedi/dollar exchange rate, the value of the gold supplied will be determined and paid for within 48 hours to the aggregator,” he said.

At the next stage, Dr Addison said, the BoG would aggregate the assayed dore gold in its vaults and periodically send the validated dore gold to a certified refinery to be processed to the required international standard of good gold delivery, with 99.99 per cent purity.

The final leg, the governor explained, the LBMA-certified gold would then be stored at designated locations as part of the BoG’s reserves.

He said only one gold aggregator had been selected for the programme after an independent due diligence was conducted.

Dr Addison said in the near-term, other gold aggregators would be eligible to participate in the programme, “once a road map is developed to ensure they meet the governance, risk, compliance and supply chain requirements”.

Commendation

The BoG’s Governor commended the Vice-President, Dr Mahamudu Bawumia, who he said got the programme started, and the collaborative roles played by the Minerals Commission, the PMMC, the Ghana Chamber of Mines, selected licenced gold aggregators, among others, for making the programme a success.