Central Banks Look to Build Gold Reserves

Thursday, 14 March 2013
Written by  Bullion Vault
Published in World Economy
Central Banks have a choice to make. They either need to buy and sell gold, or start looking into building gold reserves. This will help their situations in the long run and add to their non-Dollar and non-Euro assets. This according to a new study from gold-market development organization the World Gold Council.


I guess the real question is will they actually start to build their gold reserves?

"The financial crisis and subsequent sovereign debt crisis have heightened reserves manager attention to the need for increased diversification," wrote Ashish Bhatia and Natalie Dempster of the Government Affairs division.

Looking at asset volatility and correlations – and seeking to spread and reduce the risk of sharp losses – assets in Chinese Renminbi, gold, and the Australian Dollar "emerge as the most important for diversification."

Central Banks need look no further than China and India, who have used the gold buying and stockpiling strategy to perfection. While India has been doing it a while, China only started stockpiling gold about a year and a half ago. That being said, China is now recognized as the world’s largest gold holder, while India comes in second. Not only did China want to become a major player in the precious metals market, but they are also setting themselves up in case of a cash shortage.

True, China will more than likely not experience a cash shortage, as they have a huge supply of free cash, but still, this is the strategy. Central Banks have been looking at this type of play for a while, and while they still haven’t made the move, more and more studies show that this is the play they should make right now.

Reported central-bank reserves worldwide have risen from $2 trillion in 2000 to over $12 trillion last year. Gold prices also rose 6-fold during that time. The level of gold holdings as a percentage of total central-bank assets in both 2000 and 2012 was 13% by value. But while Euro-denominated assets rose from a 16% to 22% share, central banks globally cut their allocation to US Dollar assets from 62% to 54%.

It actually seems that some Central Banks have already started this process, hoping to diversify into a more powerful situation if the case arises. Now would be a great time to start, as the price of gold is lower than usual right now and they would be able to stockpile at a much lower rate than usual.

Original Article: Bullion Vault

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