Recent survey among central banks: twelve reasons for gold

News Arnulf Hinkel, financial journalist – 20.11.2018

Investors will almost inevitably think of two reasons for central banks to invest in gold: it is both the ultimate safe haven and an effective portfolio diversifier. In a survey conducted among 22 central banks earlier this year, the World Gold Council, in cooperation with British public opinion and data company YouGov, identified ten further important factors considered relevant by central banks regarding their gold reserves. 

Capital market and global policy factors

88 per cent of the central banks surveyed value gold for its universal acceptance, even more than for its historically grown importance (82 per cent). Also, the fact that gold is a highly liquid asset was rated as important by 76 per cent of respondents, as was the fact that gold has no default risk (82 per cent). In addition, 65 per cent of respondents of the survey stated that they valued the precious metal as an effective protection against geopolitical risks.

Strategic factors 

Like other institutional investors, central banks not only manage their gold reserves, but also use them – to a very limited extent – to optimize their portfolios. 88 per cent of respondents valued the fact that the correlation of gold with other asset classes is, if at all existent, weak, while 71 per cent value gold as valuable collateral. The central banks surveyed rated the value of gold as a hedging instrument against inflation and its ability to generate returns in all market conditions as similarly relevant, at 53 per cent. For 71 per cent of respondents, the power of gold to optimise risk-adjusted returns was seen as an important factor. 

Given these assessments, it may not come as a surprise that 18 per cent of the central banks that participated in the survey plan to increase their gold reserves within the next twelve months, while none intend to reduce their gold reserves during this period.

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