Central Banks, Fis Hold 34,000 Tons Of Gold As Reserve

Gold plays a prominent role in reserve asset management. Safety and liquidity are paramount for reserve managers globally:

- Mehul Dani

Globally, central banks and supranational organizations – such as the International Monetary Fund and the Bank of International Settlements – held almost 34,000 tons of gold as reserve assets as of 2018, amounting to an increase of 700 tons in a year. This comprises 17% of total aboveground stocks. In the calendar year 2019, the WGC data shows that global gold-backed ETF holdings grew 14%, reaching an all-time high of around 2900 tons on the heels of uncertainty surrounding most parts of the world.

While safety and liquidity are paramount for reserve managers, returns are important too: gold has provided, as of 31 December 2019, an average annual return of nearly 10% in US dollars since 1971.

Gold plays a prominent role in reserve asset management, being one of the few assets that are universally permitted by the investment guidelines of the world’s central banks. This is in part due to the gold market being deep and liquid – a key requirement of reserve asset managers. Central banks may base their investment strategy on numerous factors, but the primary reasons for recent gold buying are threefold: (i) heightened economic and political risks, (ii) low and negative interest rates, and (iii) allocation rebalancing.