Follow The Central Banks, Make Safe With Gold

Central Banks have shown signs of edging away from the dollar as their primary reserve asset and are beginning embrace gold as a more genuine “safe” reserve asset.

Sales of gold by European central banks are now much lower than forecast and this is expected to continue for the next year.  Despite a Central Bank Gold Agreement signed in 1999 by European institutions that gives its members a selling ceiling of 500 tonnes per year, sales for the last year have been well below that limit at just over 357 tonnes.

Asian and Middle Eastern banks have also increased the volumes of gold they’re buying in an attempt to move away from too much dependence on the dollar as their reserve asset.

Although the US dollar has recovered against the record lows it reached against the Euro earlier in the year, there are still grave doubts about its stability and viability as the default reserve asset. 

Philip Klapwijk, executive chairman of metals consultancy GFMS, said: “given the damage done to a lot of other paper assets that were formerly considered secure, there will be greater risk aversion among central banks. This will only boost gold’s status within central bank reserves.”

German’s Bundesbank, which hold the second largest bullion reserves in the world after the U.S. Federal Reserve, reported on Tuesday that it would not make any further sales of gold over the next 12 months, with exceptions for one small sale that had already been agreed with the finance ministry.

The Swiss National Bank also said on Monday that it had completed the sale of 250 tonnes of gold that it announced last June, and had no plans for further sales.

Some central banks may actually move beyond freezing sales of gold to being active buyers, especially Asian and Middle Eastern central banks which are looking to diversify their current dollar assets.