Central Bankers Favor Gold

A growing percentage of central bankers around the world plan to increase gold reserves over the next 12 months, according to a World Gold Council survey that found 25 percent of central banks intend to purchase gold, up from 21 percent last year.

“The planned purchases are chiefly motivated by increasing concern about a possible global financial crisis,” concluded the Council’s Central Bank Gold Reserves Survey. Concerns about rising economic risks and anticipation of changes in the international monetary system were also drivers of rising demand for gold.

For the second consecutive year no respondents indicated plans to decrease gold holdings.

Even bankers who do not plan to buy gold in the near term expect rising demand, with 61 percent of respondents anticipating central bank gold reserves will increase over the next 12 months, up from 52 percent last year. Many central bankers believe the buying will continue for the next five years, with 46 percent saying the percentage of central bank reserves invested in gold will increase over that period. Bankers in emerging economies were particularly bullish on the demand for gold.

When questioned why they hold gold, the central bankers cited numerous attributes of the precious metal:

  • performance during times of crisis (94 %);
  • reputation as an inflation hedge and a long-term store of value (89 %);
  • effective portfolio diversifier (85 %);
  • no default risk (84 %);
  • highly liquid asset (74%);
  • lack of political risk (70%);
  • serves as valuable collateral (69%).

The survey was conducted by YouGov, a British market research and analytics firm, between February 23 and April 29, with 57 central banks responding.