Central Banks Turning to Gold Bullion

CENTRAL BANK reserve managers are increasing their holdings of Gold Bullion, according to a survey published this week.

A poll by Central Banking Publications taken over the winter of 2010-11 suggested that reserve managers are altering their strategies in the response to economic backdrop, and moving into assets they deem to be safer.

"Traditionally, government bonds have been termed 'risk-free' assets but the Eurozone situation has made some of us change our understanding of that," said one of the 39 reserve managers who responded.

The survey's respondents – responsible for managing $3.5 trillion, or 35% of total world central bank reserves – identified gold as a "safe" reserve asset in a climate of loose monetary policy and rising sovereign debt levels. 

The survey found that central banks became net buyers of gold bullion in 2010. This marked the end of a 20 year trend of net selling of gold by central banks.

Over 70% of reserve managers surveyed said they expect central banks to remain net buyers of gold, given sovereign debt uncertainties.

"Both the Eurozone and the US are confronted by large deficits with simultaneously modest growth, which has influenced the value of their currencies and raised questions about debt sustainability," said one respondent.

The Central Banking Publications findings were echoed Wednesday when GFMS, the leading precious metals consultancy, published its Gold Survey 2011.

The GFMS survey also found that central banks became net gold buyers last year. The official sector bought approximately 100 tonnes of Gold Bullion last year, it reported.

Speaking at the survey's launch Philip Klapwijk, chairman of GFMS, said the possibility of some Eurozone countries selling gold in an attempt to alleviate sovereign debt pressures was "completely out of the question", since such a move would be likely to provoke an unfavorable reaction from financial markets.

 "There is zero chance of any gold sales," he said. "The signal this would send to the market...would be an act of folly."