New York (Kitco News) -- Central banks stopped selling gold in the past few years and began buying the precious metal, and that trend is likely to continue for some time, according to an official at the World Gold Council.

Natalie Dempster, director of government affairs for the WGC in London, said many central banks, those in Asia and other emerging markets in particular, have been rebalancing their reserve portfolios and will continue to do so. Dempster spoke at the Argyle Executive Forum’s 2011 Investment Leadership Forum here, sponsored by the WGC.

Asian banks had a huge build-up in foreign exchange reserves over the past couple of years and the reserves supplies had remained fairly constant. Gold was a good asset to utilize in that rebalancing, she said.

Central bank investment strategy also changed as a result of the financial and economic crisis, Dempster said. Prior to the recessionary period, central banks reserve asset managers have refocused their strategies.

“Before the crisis, it was about yield enhancement,” she said. “Where can I ship my money to get a few more basis points? The crisis brought that all to an end. After the crisis was it put the focus back on risk management strategy and investments that were liquid could be used in some other manner.”

Dempster said no central bank selling is likely anytime soon. There has been a gradual increase in buying from some central banks such as China, India, Thailand, Russia and Mexico. “I think that will be the case,” she said.

She emphasized that central banks are limited by their guidelines as to where they can invest their reserves: usually money deposits, government debt, quasi-government debt. In many countries where government debt has been undermined by the debt crisis, they don’t have that many places to go, she said.

“Gold is almost universally permissible in the investment guidelines of every central bank in the world,” Dempster said.


By Terry Wooten, of Kitco News;

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