Central banks continue to be positive on gold and around 21 per cent of the central banks around the globe intend to increase their gold reserves over the next 12 months, according to a survey undertaken by the World Gold Council.
The '2021 Central Bank Gold Reserves (CBGR)' survey also noted that central banks are also increasingly valuing gold's performance during periods of crisis as this attribute now tops their rationale for holding gold.
According to the report, these results come amid ongoing uncertainty stemming from the COVID-19 pandemic, a situation that has added significant complexity to central bank reserve management. It noted that this year's CBGR survey indicates continuing central bank interest in gold. Potentially driving this interest is a growing recognition of gold's financial characteristics, particularly during periods of crisis.
The report also adds that the ongoing concerns about global market volatility and the path of the post-pandemic economic recovery continue to inform central banks' views of gold. These same factors may also be clouding respondents' opinions on the overall direction of central bank gold holdings despite having more certainty on their gold plans.
The WGC report said that central banks will need to balance financial and geopolitical uncertainty with a potentially strong pickup in global growth. ‘We believe that central banks will continue to be net buyers of gold, although total purchase volumes may not be as large as in the previous decade’ says WGC report.
The report also said that around 84 per cent of respondents report that uncertainty over the post-COVID economic recovery is relevant for their reserve management decisions, as well as negative rates, continues to inform their investment decisions. The continuation of expansive monetary and fiscal policies, now combined with the prospect of rising inflation will likely be at the forefront of central bankers' concerns for the future. The conviction towards gold amongst respondents in this year's survey suggests that central banks have a clearer picture of their plans for the coming year, and is supportive of continued gold purchases from the official sector.
Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough&Polished
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