Are Central Banks Still In Love With Gold?

Due to diversifying needs, gold is an easy answer for developing markets. The WGC explains, “The list of countries actively adding to their official gold holdings remains heavily concentrated in developing markets, which partly reflects the scale of growth in the reserves of these markets over recent years. As the official reserves of these countries swell, with their heavy emphasis on U.S. dollars- and euro-denominated assets, the need for diversification also increases. With a focus on high quality, liquid assets as desirable alternatives, gold is a natural destination for a proportion of these increased reserves. A number of research papers have addressed the issue of gold’s characteristics and benefits as a reserve asset, as well as optimal allocations for gold within a standard reserve asset portfolio.”

Since becoming net buyers in 2009, central banks have added almost 1,100 tonnes to global gold reserves, a sharp contrast to the 1,143 tonnes of net sales seen in the preceding three years. In fact, very few central banks are selling gold. The WGC reports  that under the Central Bank Gold Agreement, which caps gold sales, only 5.5 tonnes were sold throughout last year. This amount was fully accounted for by Germany and its need to mint commemorative gold coins.

Overall, gold demand in the fourth quarter reached 1,195.9 tonnes, the highest fourth quarter haul on record. Annual demand in value terms reached its highest amount in history at $236.4 billion.

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Disclosure: Long EXK, AG, HL, PHYS