Central banks are buying lots of gold, so what do they know?

Monday, September 19, 2016
By Paul Martin

After years of selling bullion, official gold holdings are rising once again

By David Marsh
MarketWatch.com
Sept 19, 2016

LONDON (MarketWatch) — Central bankers are creatures of habit, especially when it comes to dealings in gold, no longer formally part the monetary system, yet still imbued with almost mythical significance by many investors around the world.

Not for nothing is the yellow metal still regarded in many ways as a bedrock of world money. Around 20% of all the gold ever mined is held by central bank and governments, with the biggest official holdings at the U.S. Treasury with 8,134 tons.

So it is significant that central banks are turning back to annual gold purchases in line with a century of practice between 1870 and 1970. This appears to be restoring gold as a central element of monetary management after four decades of attempted demonetization, according to reserve statistics compiled by the Official Monetary and Financial Institutions Forum, the financial research group.

Annual net gold purchases of 350 tons a year by world central banks over the past eight years have returned to the 100-year average up to 1970 — reflecting gold’s renewed attractiveness as a safe-haven asset in an environment of uncertainty and low or negative interest rates.

An OMFIF research document — the “Seven Ages of Gold” — contains detailed statistics plotting long-run changes in central banks’ policies on buying and selling gold over seven distinct periods during the past two centuries, each lasting an average of around 30 years.

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