Around the world, central banks and supranational organizations – such as the International Monetary Fund and the Bank of International Settlements – currently hold nearly 34,000 tonnes of gold as reserve assets, the World Gold Council reported in a market primer on Thursday.
The official holdings, most of which are held in Europe and North America, represent approximately 17% of total above-ground stocks, based on WGC’s calculation that a total of 197,576 tonnes have been mined throughout history.
The Council states that while central banks base their investment strategy on numerous factors, the primary reason for recent gold buying came down to heightened economic and political risks, low or negative interest rates, an anticipation of change in the monetary system, and the rebalancing of asset allocations.
Gold is one of the few assets that is universally permitted by the investment guidelines of the world’s central banks, and the gold market is relatively deeper and more liquid compared with other investment assets.
Gold also aligns with almost every reserve manager’s investment mantra of safety, liquidity and return. Based on the Council’s estimates, gold has provided reserve managers with an average annual return of nearly 10% (in US dollars) since 1971.
According to the Council, central banks’ behaviour with respect to gold fundamentally shifted following the 2008 global financial crisis, and the banks have been net buyers of gold on an annual basis since 2010. Over the last decade, central banks and institutions have accounted for 11% of annual gold demand.