Central banks will continue to buy gold to diversify their holdings - Invesco survey
(Kitco News) - In the third quarter, for the first time in nearly a decade, central banks became net sellers of gold. However, according to a report from Invesco, central banks are expected to maintain a firm grip on their gold reserves.
The international investment firm conducted a central bank survey between August and September as gold prices pushed to an all-time high above $2,000 an ounce.
According to the results survey, participants expect to see that central bank gold reserves will continue to increase during the next 12 months.
At the same time, the survey noted that the COVID-19 pandemic had not impacted central banks’ views on gold. Around 25% of respondents said they view gold as a more attractive asset, the report said.
The report also noted that one African central bank said that the current price made holding gold “unattractive.
As to why most central banks see value in holding gold, the report said that diversification was a significant factor.
“The desire for diversification is expected to continue to propel interest in gold as well as other fiat-currency alternatives to the dollar and Treasuries, including China and the Eurozone,” said the report.
Other factors that are adding to gold’s allure among central banks include growing financial risks and low interest rates.
“Eight respondents reported that gold’s contribution to the risk of a portfolio was very relevant for their central bank, a group that contained several very large holders and was responsible for $1.4 billion,” the report said.
As to where central banks are buying their gold, the survey noted that a majority of participants transact in the global market place instead of buying domestic production. However, about a third of the central banks expect to buy domestically within the next two years.
Looking to the future of central bank gold reserves, the survey showed some hesitancy but growing interest in holding gold-back exchange traded products.
“Central banks are positively disposed to gold ETFs, but active interest in investing is the preserve of a minority,” the report said.
The report noted that one central bank in the Americas could move its reserves into ETF within two years. One central bank from Asia saw the potential to hold gold-backed ETFs within five years.
However, central banks noted significant risks when it comes to ETFs are liquidity and security.
“One reserve manager from Europe explained their thinking: ‘Our opinion is that ‘paper’ gold is not as safe as physical,’” the report said.