Gold is reassuming a more central monetary role as a favoured investment for central banks due to low and negative interest rates, increased perception of country risk, and enhanced geopolitical uncertainty, according to the 2016 OMFIF survey of Global Public Investors.
The 2016 edition of Global Public Investor highlights gold’s renaissance as a traditional investment haven, with central banks’ purchases in the second half of 2015 accelerating to the highest-ever semi-annual rate, a result of purchases by institutions led by China, Russia and Kazakhstan, and a drying up of sales by developed country central banks.
The third annual edition of Global Public Investor reports on asset management performance by central banks, sovereign funds and public pension funds shows that, though central banks accelerated bullion buying last year, the falling price of gold throughout the year meant it made a negative contribution to overall GPI assets under management. The value of bullion in official assets worldwide fell to $1.12tn despite an increase in total bullion holdings last year to 32,734 tonnes by end-December 2015, the highest level since 2002.
Gold prices have risen throughout 2016, with the latest data from end-April showing that central bank holdings stood at 32,805 tonnes and were worth $1.36tn, a 22% increase in value since the start of the year. On the morning of 29 June the gold price was $1,321.17 an ounce, following its peak of $1,324.55 on 26 June – its highest price level since March 2014.
Demand has been driven by international financial uncertainty after the British referendum result, and expectations that US interest rates will remain at their present low level until the end of the year. In the febrile atmosphere on world markets, gold is ‘coming into its own’ as an asset that is not issued by any state or government, at a time when asset managers around the world are querying whether yields are sufficient to cover country risk, the OMFIF report says.
Total assets under management of the 500 largest Global Public Investors fell 2.9% in 2015 to $28.99tn, down $855bn on the slightly restated 2014 figure, with the decline driven primarily by central banks. Among other highlights, GPI 2016 documents the renminbi’s fresh popularity as a reserve asset – part of a gradual move towards an international multicurrency reserve system – as well as the growth in sustainable investment as public institutions step up their support of a low-carbon economy.
Gold has become increasingly attractive as an alternative to reserve currencies, with the euro, yen and Swiss franc all weakening against the dollar in 2015. Emerging market economies, while generally reducing their overall assets last year, have been keen to diversify away from dollar assets.