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2021 Central Bank Gold Reserves Survey

  • World Gold Council
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  • Published: 8.6.2021. 0:00:00

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Executive Summary

 

Central banks continue to be positive on gold, with roughly the same number of central banks expected to buy gold compared to last year. According to the 2021 Central Bank Gold Reserves (CBGR) survey, 21% of central banks intend to increase their gold reserves over the next 12 months. Central banks are also increasingly valuing gold’s performance during periods of crisis as this attribute now tops their rationale for holding gold. These results come amidst ongoing uncertainty stemming from the
COVID-19 pandemic, a situation which has added significant complexity to central bank reserve management.

Several of the survey’s findings point to this growing complexity: 84% of respondents report that uncertainty over the post-COVID economic recovery is relevant for their reserve management decisions. The same proportion of respondents say that negative rates – the most relevant factor in last year’s survey – continues to inform their investment decisions. The continuation of expansive monetary and fiscal policies, now combined with the prospect of rising inflation, will likely be at the forefront of
central bankers’ concerns for the foreseeable future.

This year’s survey respondents continue to show strong interest in growing their own gold reserves. But respondents have less conviction about the overall trend in central bank holdings. This reflects, we suspect, recognition that some central banks sold gold last year and that one prominent buyer, the Bank of Russia, had announced a halt to its regular purchases. Overall, 52% of respondents believe that global central bank gold holdings will grow in the coming year, down from 75% last year.

At the same time, respondents also demonstrate greater conviction on their own direction for gold: only 11% do not know their plans for gold this year compared to 20% last year.

Central banks have also been venturing into non-traditional asset classes in recent years, driven by both low yields and evolving policy objectives. This year’s CBGR survey included a question on non-traditional asset classes for the first time. Sustainable bonds were the most popular asset class, with nearly half of respondents saying they will increase their exposure to this area. This corresponds to the continuing importance attached to ESG as central banks, especially those from advanced economies, deepen their focus on this area. Despite growing hype amongst some investors, no central banks report any plans to invest in cryptocurrencies.

This year’s survey continues to highlight significant interest in gold amongst central banks, with the backdrop of the COVID-19 pandemic underscoring the importance of maintaining liquid, uncorrelated assets in a reserve portfolio. Inflation has also resurfaced as an investment consideration and may inform central bank asset allocation in the coming years. We believe that central banks will continue to be net buyers of gold, albeit at somewhat lower volumes than those of the previous decade. The
results of the 2021 CBGR survey provide continuing support for this view.

 

International reserves

 

After a dip in the growth of central banks’ international reserves last year, the change in total reserve levels has rebounded: 68% of central banks report higher reserve levels than five years ago, up from 53% last year. The factors that have led to the growth in reserves have shifted since last year’s survey: “as a buffer against balance of payments crises” remains the most popular reason with 37% of respondents citing it. However, factors related to cross-border flows like “as a consequence of exchange
rate policy” and “cross-border trade flows have grown” witnessed significant drops in their relevance compared to previous surveys. This may indicate ongoing worries about the possibility of financial instability while cross-border activity has understandably slowed due to the pandemic. Amongst the factors that influence reserve management decisions, “negative interest rates” continues to be the most relevant. The top spot is shared with “uncertainty over the economic recovery following COVID-19”, which was added as an option this year. This result underscores the additional complexity that the pandemic has introduced. “Shifts in global economic power” and “ESG issues” followed in importance.

However, there was a notable gap between advanced economy central banks and their Emerging Market and Developing Economy (EMDE)2 counterparts on attitudes towards ESG: 65% of advanced economy respondents cite ESG as relevant, more than double the 31% of EMDE respondents who thought so.

Respondents continue to foresee long-term structural changes in the international monetary system, continuing a trend indicated in last year’s survey. Views toward the US dollar trended downward, with half of respondents saying the greenback will fall below its current proportion. Central banks continue to think that the Chinese renminbi’s proportion will increase, with 88% saying that it will grow beyond current levels, although the majority say that this growth will be modest.

Central banks’ views on gold over the next five years witnessed a downward shift, with 38% of respondents saying that gold’s proportion of international reserves will be greater than its current position, down from 69% last year. The majority say that gold will occupy a range of 10-16% of international reserves from its current position of 16%.

This result corresponds to a later question on the short-term outlook for central bank gold buying and may reflect less conviction amongst individual respondents about the direction of the overall community. Motivations and intentions Four-fifths of central banks surveyed hold gold as part of their international reserves, which is broadly unchanged from previous surveys. However, the rationale for holding gold has seen an interesting evolution.

“Performance during times of crisis” is now the top reason to hold gold, with 79% of respondents marking it as highlyor somewhat relevant. This factor has climbed to the top spot after ranking fourth in 2019 and second in 2020, a progression that may reflect the increasing importance that central banks attach to crisis mitigation and a potential nod to gold’s strong performance during the pandemic.

“Historical position” is now the second most relevant reason to hold gold, followed by a tie between “long-term store of value” and “effective portfolio diversifier” for third place.

There continues to be a significant divergence between advanced and EMDE central banks on their rationale for holding gold. This divide is starkly illustrated in the responses to “performance during times of crisis”, with 91% of EMDE respondents marking it as highly-or somewhat relevant compared to 53% of advanced central banks. Virtually all other investment-related characteristics showed a similarly strong divergence as well, including “long-term store of value”, “no default risk”, and “lack of
political risk”. EMDE central banks generally face greater challenges in maintaining orderly capital flows and currency stability. These results indicate that EMDE central banks tend to view gold as an important component of their overall reserve management strategy, especially at a time when there is a greater need for risk mitigating assets.

Over the next 12 months, 52% of respondents say that global central bank gold holdings will increase, a drop from 75% in 2020. A further 32% of respondents say that global central bank gold holdings will remain unchanged while 5% say that they will decrease. These results may reflect the slowdown in central bank gold buying in 2020 when net purchases declined to 326 tonnes compared to 668 tonnes in 2019, and thus less overall certainty in the direction of the central bank community. They may also reflect ongoing worries about the state of global markets and a heightened need to deploy reserves if necessary.

In contrast to the previous point, there is increased certainty amongst central banks on their own plans for gold: 21% of respondents say that they will add gold to their reserves in the next 12 months, up slightly from last year. No central bank plans to decrease their gold holdings, down from 4% last year. A further 68% have no plans to change their gold holdings while 11% do not know their plans. The proportion of those who do not know their plans has halved from 20% in 2020. Overall, central banks
appear to have slightly more conviction on their own plans for gold, while simultaneously having less clarity on the global central bank community’s direction.

An additional question was added in this year’s survey on diversification into non-traditional asset classes. Nearly half of respondents planned to increase their allocation to sustainable bonds in the next 12 months. The foray into sustainable bonds is dominated by advanced economy central banks, with 80% planning to increase their exposure compared to 30% amongst EMDE respondents. Investment-grade corporate bonds and equities followed as the next most popular categories.

It is notable that no central banks plan to invest in cryptocurrencies despite interest in this area from other investors.

 

Managing gold reserves

 

Amongst survey respondents, 72% manage gold separately from other reserve assets, a figure which has fallen from previous years. The proportion who manage gold as part of an investment tranche or a liquidity tranche showed very little movement compared to last year. The proportion of those buying gold on the global OTC market has decreased to 43% from 60% last year. Another 43% of respondents say that their gold is a historical legacy asset, a new option added to this year’s survey to reflect
the fact that some central banks may have acquired their gold in the distant past. Interestingly, 4% of respondents say they purchase gold through ETFs. The same proportion say they use financial derivatives.

Good Delivery bars continue to be the mainstay with 70% buying gold in that form. Kilo bars and doré were much less popular, although both categories saw upticks versus their results last year. Just under one quarter of respondents have considered upgrading gold holdings that do not conform to Good Delivery standard, with the bulk of those coming from EMDE respondents. The Bank of England continues to be the most popular storage location, with 63% of respondents vaulting there.

This marks a significant increase from last year and may indicate growing importance attached to keeping gold in liquid trading centres. Domestic storage has also grown to 39% of respondents, also higher than previous years. However, the changes in custody arrangements at the individual level reflect less movement: 2% of respondents increased domestic gold storage compared to 5% in 2020. Furthermore, 0% of respondents intend to increase domestic storage in the coming 12 months compared to
7% in 2020.

The proportion of respondents who actively manage their gold reserves remains roughly unchanged from last year at 35%. Gold deposits are the most widely used method for gold management, followed by gold swaps (giving gold as collateral).

 

Conclusion

 

This year’s CBGR survey indicates continuing central bank interest in gold. Potentially driving this interest is a growing recognition of gold’s financial characteristics, particularly during periods of crisis. At the same time, ongoing concerns about global market volatility and the path of the post-pandemic economic recovery continue to inform central banks’ views of gold. These same factors may also be clouding respondents’ opinions on the overall direction of central bank gold holdings despite having more certainty on their own plans for gold.

Looking ahead, central banks will need to balance financial and geopolitical uncertainty with a potentially strong pickup in global growth. We believe that central banks will continue to be net buyers of gold, although total purchase volumes may not be as large as in the previous decade. The slightly stronger conviction towards gold amongst respondents in this year’s survey may suggest that central banks have a clearer picture of their plans for the coming year, and is supportive of continued gold purchases from the official sector. 


Analysis

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2021 Central Bank Gold Reserves Survey

Executive Summary

 

Central banks continue to be positive on gold, with roughly the same number of central banks expected to buy gold compared to last year. According to the 2021 Central Bank Gold Reserves (CBGR) survey, 21% of central banks intend to increase their gold reserves over the next 12 months. Central banks are also increasingly valuing gold’s performance during...

Read...

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