2019 Central Bank Survey: what makes gold important as a reserve
News Arnulf Hinkel, Financial journalist – 03.09.2019
The World Gold Council has once again conducted its annual Central Bank Gold Reserves Survey (CBGR) in cooperation with the public opinion and data company YouGov.
Its aim is to learn about central banks’ motivations and future prospects of their gold reserve policy.
The published findings* cover both overall and individual results of advanced economy central banks and emerging market and developing economy (EMDE) central banks.
Strong gold demand – but not always for the same reasons
70 per cent of the central banks surveyed have increased their total reserves over the last five years – including their gold reserves: in 2018 alone, they bought 651 tonnes of gold. However, advanced economy central banks and EMDE central banks have different motives. While the former cite the historically important role of gold stemming from the times of the gold standard and the Bretton Woods system as the main reason for holding the precious metal, the EMDE central banks put its suitability as a long-term investment first, followed by the fact that it does not hold default risk. The role of gold as an effective portfolio diversifier is ranked third.
Shifts in global monetary system could drive demand for gold
In addition to geopolitical crises and risks, monetary policy considerations are the primary motivator cited by central banks for potential gold purchases over the next five years. This is mainly due to the likelihood of a reduction of the share of US dollars and possibly also of euros in total reserves in favour of renminbi and gold.
As many as 31 per cent of those surveyed believe that a reduction in the US dollar share of their reserves within five years is likely, while only 15 per cent expect a decreased euro share. For the same period, 77 per cent of those surveyed see a growing representation of the renminbi in total reserves, with the advanced economy central banks rating probability at 82 per cent and EMDE central banks at 75 percent. At the same time, 67 per cent of the central banks assume that the share of gold in the reserves will remain stable or even increase significantly. In any case, 54 per cent of the central banks surveyed expect gold reserves to increase over the next twelve months.
*Central Bank Gold Reserves Survey 2019, published 18 July 2019 by the World Gold Council on www.gold.org