Bank of Zambia plans to build US$36m worth of gold reserves in 2021 to support local currency

ZAMBIABank of Zambia (BOZ) has revealed plans to buy up about 600 kilograms of Gold from the Zambia Gold Company in 2021, having so far bought 47 kilograms of gold from ZCCM IH subsidiary, Zambia Gold company.

The US$36 million gold reserves value excludes gold that will be purchased via its second gold buying agreement with First Quantum Minerals – FQMs Kanshanshi Mine of Solwezi.

In an exclusive response to the Zambian Business Times, Bank of Zambia stated that that they target to buy 600kgs of gold from Zambia Gold Company in 2021 whose value like most commodities, varies with fluctuating market conditions.

To ensure that reserves reflect international best practice values, the value of gold purchased and held is reflected by the prevailing gold prices at the London Bullion Market Association (LBMA).

Research done by the Zambian Central Bank revealed that the current gold prices at LBMA are at about US$60 per gram, which translates the 600kg target to about US$36 million, a good start especially that it does not include the Kanshanshi gold, which should be able to at least double the values.

“Purchasing gold using local currency provides a sustainable avenue of international reserves accumulation and enhances investor confidence”

To ensure that there is no further leakage of forex, BOZ Assistant Director for Communication Besnat Mwanza told ZBT that “BOZ will be buying the gold in Kwacha which takes away the need to source dollars or forex to buy the gold”.

“Purchasing gold using local currency provides a sustainable avenue of international reserves accumulation and enhances investor confidence”, stated Mwanza.

Zambia is poised to become a notable gold producer after the discovery of size-able deposits at Kasenseli in Mwinilunga’s North Western province with other provinces such as Central, Lusaka and Eastern are also producing gold at small scale level, with prospects for large scale mining under various feasibility study stages.

The building up of gold reserves is expected to provide a buffer that can support the local currency – the Kwacha which has perpetually been shading value against international convertible currencies such as the US dollar.

But there is need for a more aggressive gold buying program from BOZ that can secure at least three months import cover of gold reserve value over in the medium term (in about 3 years).

Holding of say three months import cover of gold reserves in addition to US dollar cash reserves currently held is likely to scare away foreign currency market speculators as well as smooth out local currency depreciation pressure.

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