You are here

But Jeff Christian says central banks hardly ever think about gold

Section: Daily Dispatches

Central Banks See Growing Reserve Asset Role for Gold

By Jack Farchy and Javier Blas
Financial Times, London
Wednesday, June 23, 2010

Nearly a quarter of central banks believe gold will become the most important reserve asset in the next 25 years, according to an annual poll by UBS.

The result highlights the sea-change in attitudes in the official sector towards the yellow metal.

For two decades, central banks were net sellers of gold but that trend has reversed as central banks in Europe are scaling down their sales and others, such as China, India, and Russia, are making significant purchases.

... Dispatch continues below ...


Prophecy to Become Coal Producer This Year
with 1.5 Billion Tonnes of Resource

Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen.

For Prophecy's complete press release about its production plans, please visit:

Asked what the most important reserve asset would be in 25 years, about half of officials polled by UBS said the US dollar but 22 per cent pointed to gold.

Bullion was the second most popular response, well above others such as Asian currencies or the euro.

UBS surveyed more than 80 central bank reserve managers, sovereign wealth funds, and multilateral institutions with over $8,000 billion in assets at its annual seminar for sovereign institutions last week. The results were not weighted for assets under management.

The reversal of the trend of central bank gold sales has boosted sentiment toward the metal while removing a significant source of supply.

That has helped prices rise 12.5 per cent since the start of the year, hitting a nominal all-time high of $1,264.90 a troy ounce on Monday.

The central bank managers believe gold will be the best-performing asset class in the next six months, ahead of equities, bonds, oil, and currencies, according to the poll.

Despite their bullish sentiment towards gold, sovereigns are unlikely to start making large-scale purchases, said Terrence Keeley, global head of sovereign client services at UBS.

"Reserve managers operate at one speed above reverse," he said. "Decisions to change their investment practices will be taken after great consideration over a long period."

Sovereign wealth funds are also turning their attention to gold. China Investment Corporation, Beijing's sovereign wealth fund, earlier this year revealed a small investment in bullion through the New York-listed SPDR Gold Trust, an investment vehicle backed by physical gold.

Bankers said other SWFs, including the Abu Dhabi Investment Authority and the Government of Singapore Investment Corp., were looking at gold.

GFMS, the precious metal consultancy, estimates central banks last year sold 41 tonnes of gold, down 82 per cent from the low of 2008 and the lowest in 20 years.

Philip Klapwijk, chairman of GFMS, said central banks were more likely to be buyers than sellers for the first time in two decades. But he said: "I will be surprised if we see multi-hundred tonnes purchases."

There has not been a sustained period of significant central bank gold purchases since the 1960s.

About 10 per cent of global central bank reserves is held in gold, according to the World Gold Council, but that belies a sharp difference between central banks in developed economies, which generally hold more than 50 per cent of assets in gold, and those in emerging markets, which have a relatively small proportion of assets in gold.

* * *

Support GATA by purchasing a colorful GATA T-shirt:

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:

* * *

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

To contribute to GATA, please visit: