# Gold reserves in central banks – 2020 survey results

Reserve managers share their views on future gold holdings, target allocations, purchasing and storage approaches, the use of ETFs, and the impact of Covid-19, in the results of a new joint Central Banking-Invesco survey. By Nick Carver and Robert Pringle

This article reports the findings of a joint survey of central banks carried out by Central Banking, with the support of Invesco, in August 2020. Those that took part did so on the condition that neither their names nor those of their central banks would be mentioned.

### Executive summary

• The Covid‑19 pandemic has not, in the main, changed the view of central banks on gold, although almost one-quarter of respondents said they view gold as a more attractive asset.
• Central bankers typically expect central bank gold holdings to increase over the next 12 months; no respondent expected a decrease.
• When determining a central bank’s gold holding, the benefits of diversification stand out as the most relevant factor for reserve managers.
• One in three central banks said they maintain a target allocation for gold: this rose to 39% of respondents when only those holding gold were considered.
• Purchases in the global market are by far the most popular means of buying and selling gold, with derivatives second.
• Overseas storage at a central bank is the preferred way to store gold: more than 80% of respondents said they did this.
• Central banks are positively disposed to gold exchange-traded funds (ETFs), but active interest in investing is the preserve of a minority.
• A combination of gold’s quality as a hedge against the US dollar and ETFs’ cost-effectiveness are the main benefits for holding ETFs.
• Liquidity risk is the chief concern associated with holding gold ETFs, although larger holders say safety regarding physical gold is more of an issue.

### Profile of respondents

The Gold for Central Banking 2020 survey questionnaire was distributed in August 2020 and had received replies from 26 central banks by the first week of September. The reserve managers that replied did so on condition of anonymity. The 26 central banks are, as a group, responsible for just over $2.6 trillion in reserves as of June 2020.1 The average holding was just over$100 billion. Collectively, the banks are responsible for $344 billion worth of gold, with an average holding of$13 billion. The group included six central banks with no gold reserves. A breakdown of respondents by national income classification and geography is set out below.

1. International Monetary Fund International Financial Statistics, with gold valued at market prices.
Percentages in some tables may not total 100 due to rounding.

The Covid‑19 outbreak has not changed how central banks see gold. This was the view of just over three-quarters of respondents, responsible for $2 trillion in reserves. Several respondents from this group noted that gold was an elemental part of their reserve management framework and as such was not impacted by market moves. A reserve manager from Asia explained: “Gold has been an integral part of our reserves regardless of market condition, and it may likely continue to be so.” A respondent from central Europe said their central bank remained committed: “We were very positive on gold in terms of the role it plays in any foreign reserve portfolio, even before Covid‑19, and that has not changed.” Another reserve manager from Europe had seen their view of gold’s strength in a crisis confirmed: “Gold is seen as a safe-haven asset in times of financial and political stress. Current market conditions have no impact on its strategic role in foreign reserves, other than to reaffirm the validity of the initial view.” A contrarian view was offered by a reserve manager from Africa, whose central bank had yet to be persuaded on the benefits of holding gold: “In our view, gold does not provide a regular income, has high volatility and, with the Covid‑19 outbreak, its price has risen substantially, making it unattractive to buy for our portfolio.” Six respondents did however say their central bank’s view had changed. The reserve holdings of this group ranged from$3 billion to more than $300 billion and they were mostly drawn from middle-income countries. In comments, two reserve managers, from Africa and Europe respectively, noted that an increase in the price of gold had strengthened its safe-haven status. ### What issues are most relevant in determining your institution’s gold holdings? The benefits from diversification stand out as the most relevant factor for reserve managers in determining their institution’s holdings of gold. Just under two-thirds of respondents – a group of central banks responsible for$1.9 trillion, and with an average holding of $134 billion – said this was “very relevant”. This group, which included several large holders, was dominated by central banks from middle-income countries. It included over half the respondents from the Americas. Low real interest rates also figure prominently in decision-making: just over 40% said this was very relevant. This group was also dominated by central banks from middle-income countries, and there was significant overlap with views on diversification benefits: all but one of the nine also said diversification benefits were very relevant. The nine were smaller reserve holders, however, holding$85 billion on average. 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. All eight also said that diversification benefits were very relevant. A similar pattern was observed when looking at the central banks with gold holdings. Of the 18 that answered this question, 61% placed diversification benefits first, followed by low real interest rates (50%) and then contribution to portfolio risk (39%). Viewing the results through the prism of national income classification revealed a variation in views, however. Diversification benefits scored highest for reserve managers from high- and middle-income countries. Immediately below this, those from high-income countries placed more emphasis on the contribution to the risk of the portfolio, but for middle-income countries, low real interest rates matter more. Just over half of respondents said “historical performance” was relevant, and several mentioned legacy or legal requirements in their comments. “Decline in oil prices” and “domestic political challenges” were not, however, seen as relevant for this group, and there was only marginal support for “weakening of the US dollar”, “Covid-19 pandemic”, “declining global growth” and “inflation risk”. ### How will global central bank gold reserves change over the next 12 months? There is little prospect of central banks reducing their gold holdings over the next 12 months, with expectations centred on stock increasing or remaining flat. Just over 60% of respondents – a group of central banks responsible for$1.7 trillion in reserves – said they expect gold holdings to increase over the next 12 months. The percentage was slightly higher among gold holders at 70%. The group of 16 was dominated by central banks from high-income countries (10), with the remainder from lower middle-income (4) and upper middle-income countries (2).

A reserve manager from Europe, whose central bank has significant gold reserves, explained what they saw as the two driving forces behind this: “The growing demand from emerging-market central banks reflecting current geopolitical, political and economic conditions, as well as structural changes in the global economy, will probably last in the future.” Six reserve managers, of which two-thirds were from upper middle-income countries, said they thought holdings would remain the same. Indeed, among upper middle-income countries, this was the majority view: only one in three among this group expect gold holdings to increase. In contrast, all four reserve managers from lower middle-income countries expect central banks to hold more gold in 12 months’ time. Three of the four reserve managers who were “unsure” were from high-income countries.

### What are the main benefits for central banks that hold ETFs?

A combination of gold’s quality as a hedge against the US dollar and cost-effectiveness are considered the main benefits for holding ETFs. Over half the survey respondents selected these two options, and three-quarters of the sample of 15 chose at least one of them. This group of 12 was responsible on average for reserves with $46 billion and gold worth$19 billion. It is notable that those mentioning the hedge against the dollar tended to be smaller holders on average of both reserves and gold than those that viewed cost-effectiveness as a main benefit. Liquidity, cited by six respondents, was typically a benefit for larger holders: three of these six were responsible for reserves worth more than $100 billion. In contrast, all but one of the six that saw reduction of the risk against the gold price as a benefit were responsible for less than$10 billion. Among those that said their institution had a positive view on gold ETFs, there was marginally more support for the hedge against the US dollar than cost-effectiveness, but the pattern broadly followed that in the previous table (What are the main benefits for central banks that hold ETFs?).

### What is the greatest concern for your central bank regarding holding gold ETFs?

Liquidity risk is the chief concern associated with holding gold ETFs: over half of respondents ranked this either first or second. These six were on average smaller holders, at $15 billion in reserves and$270 million in gold, than the survey average. The second greatest concern was that gold was not as safe as physical gold, and, indeed more respondents (five) ranked this first than did liquidity risk (three). These five were on average much larger holders – three held reserves worth more than $100 billion – and were all from Europe. Counterparty risk was third overall and ranked first or second by five respondents. Four of these five were middle-income countries and, as a group, tended to be smaller holders – on average responsible for$30 billion in reserves and $7.5 billion in gold. No single central bank saw the lack of rights of redemption as the primary concern, with only two ranking it second. There was some variation across geography and income groups. Central banks in Europe were unanimous in their concern that ETFs were not as safe as gold: all five European respondents ranked this first, with trust in the custodian the second greatest concern. In contrast, respondents from Asia were more concerned about counterparty risk and as concerned about liquidity risk as they were safety. Large holders, with more than$10 billion, were most concerned about safety compared to physical gold, whereas for smaller holders liquidity was the main concern.

This feature forms part of the Central Banking focus report, Gold for central banking 2020

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