Appears France and Austria are the 2 current Central Bank sellers...?
Has gold lost its war chest status?
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Trends indicate that international central bank's store of gold could fall further in future as yields received from the yellow metal decline, but is there another argument for investing in gold?
GFMS executive chairperson Philip Klapwijk - addressing delegates at the LBMA Precious Metals Conference in Sandton yesterday - pointed out that gold-yielding rates have declined recently, and will continue to do so.
But not all central bankers agree that that totally negates the metal's value, with many holding that gold is still a valuable asset to hold in case of emergency.
Globally, Central Bank reserves have expanded much recently, going from $2 011-billion in September 1999 to $4 335-billion in June this year.
However, gold's share of this pie has fallen from 15% to its current level of 9% with foreign exchange taking up the balance.
Globally, gold holdings are higher as a ration of reserves in the US (60%) and the Central Bank Gold Agreement countries (42%).
The rest of the world holds only a small part of reserves yet there is scope for redistribution over the next decade or so.
The trend over the last 15 years has been for reserve banks to sell off gold and this year sees reserves at record lows.
As the focus on hedging shifted towards dehedging, banks that were lending gold for yield saw yields decline, and in a bid to increase yields, extended the length of agreements.
As these agreements come to an end, the yield is now negligible at about 60 basis points.
In 1999, the volume of gold being lent by reserve banks was returning around $800-million; now, postulates Klapwijk, this figure is closer to about $250-million.
Locally, the South African Reserve Bank holds some 4-million ounces of gold in reserve.
The bank, which is not a signatory to the Central Banks Gold Agreement, nonetheless sells off gold in accordance with this agreement, notes head of the financial markets department Daniel Mminele.
This is just under 10% of reserves.
From time to time the bank does review its policy, and it is not inconceivable that it may increase reserves.
Mminele argues that holding gold is not all about yield.
If it were, he says, the bank would have sold off as yield is low and the gold price high, or would have looked to increase the yield, neither of which it is doing.
His view, that gold provides safety in times of uncertainty is one shared by many international central banks.
International view
Head of market operations at Argentina's central bank (Banco Central de la Republica Argentinia) Juan Basco agrees that yield on gold has much to do with perceptions of the metal. Gold is now considered along with any other assets.
Globally, perceptions of the metal as a worthy reserve have changed in the last decade.
Gold has the ability to protect against inflation and financial crises.
Yet central banks started to disregard the amount of gold held, partially as it became costly to hold, and looked to asset classes that would offer higher rates of return.
While it is true that other investment classes may offer higher rates of return than gold, it has also lost its traditional status as a war chest to protect against political and economic uncertainty.
With a change to floating exchange rates, higher levels of reserves were required to protect against foreign exchange-rate fluctuations, and since 1993, the bank has accumulated gold as a reserve.
The most growth has been in the last ten years, when this level reached $3,8-billion.
A higher level or reserves protects countries from capital outflows, and reserve accumulation had growth from 3% of GDP in 1970 to about 10% of GDP in 2000 in the country.
In the same time, International Monetary Funds quotes have remained flat, which led to gold somewhat regaining its status of a protection measure in volatile times.
With future currency uncertainties, and gold's delinking somewhat from the euro, gold may again be an important hedge.
Director of market operations at the French central bank (Banque de France) Isabelle Strauss-Kahn argues that yield is not the bank's the sole objective and it is currently over-weighted with gold holding 55% of reserve capacity.
France holds the highest amount of gold per person in the EU at 50 g/person. The UK, at 10 g/person, has the least amount.
In 1932 the bank held 3 000 t of gold, triple the figure held in 1928 and in the 1940s this figure dropped to 400 t thanks, in part, to the second World War.
By the end of 1966, this was at 4 700 t - 91% of reserves. A political crisis shortly afterwards saw the country sell and now there are 3 024 t in reserve, or 55% of reserves.
However, France's view that gold should play an important role in its reserves has not changed, even though it is now selling some gold in accordance with the international Central Bank Gold Agreement.
The country - which admits that central bank selling may have the effect of pushing up prices - aims to have a more diversified portfolio to protect against currency fluctuations.
Head of external reserves in the management division of Russia's central bank Maria Gueguina argues that holding gold acts as a buffer against political and economic uncertainty.
The bank said it has $4 500-billion-worth of gold at present market value.
A five-year-old report argues that the ideal ratio of gold held should be between 12% and 18% of reserves.
Now the Russian Federation keeps some 10% of its reserves in gold, which is around 500 t of gold.
The Austrian central bank, reports executive director of Oesterreichische Nationalbank Peter Zoellner, has also been selling gold off.
However, the bank, which owns a mint, has been selling some gold commercially in the form of gold coins.
Reserves are at around 307,5 t, making up between 20% and 25% of reserves, and the bank is happy with this level.
The bank's key aim is to have safety in its reserves and, once this is achieved, the gold can be put to work to earn for it.
Currently, some 220 t of gold is invested.
Zoellner argues that gold is likely to become more valuable in future as currency choices for safety and hedging purposes become constricted.
He pointed to the possibility of the Australian and Canadian currencies as an investment platform but argues that gold is likely to play a bigger role as the dollar is currently not stable.
