A rise in the price of gold has coincided with a renewed interest in the role of bullion as a monetary asset.
Eclipsed since the early Seventies by paper assets and, occasionally, even cryptocurrencies, gold is once again heralded as a risk-free asset with three huge plus points.
These are that it is universally acceptable, that it holds its value over time and that it is the only asset that is nobody’s liability – in other words, unlike paper currencies, its value does not depend on anyone’s promise to pay.
Momentum seems with price rises
The price is certainly looking chipper compared with its performance during the past 12 months. This morning it was up 0.45% at $1,322.65 an ounce, against $1,282.95 a month ago, on 13 May.
Three months ago, on 12 March, it changed hands at $1,296.95, and one year ago, on 13 June 2018, it was worth $1,294.40 an ounce.
During those 12 months, it has traded between a low of $1,176.70 on 17 August and a high of $1,345.75 on 20 February. Investors in the metal may be cheered by the fact that the high-point occurs much more recently than the low-point, suggesting momentum is with a rising price.
After the big sell-off of the late 1990s, when many central banks decided gold was an outdated financial asset that produced no return, many reserve institutions have been rebuilding their stocks of bullion.
The sales had followed decades in which many derided the idea of a commodity such as a gold as being a form of money as a “barbarous relic” of earlier times, a phrase attributed to the economist John Maynard Keynes but which is thought to pre-date him.
Regardless, the “relic” is now making a comeback.
“Emergency usefulness” resurfaces
In the first quarter of 2000, according to the World Gold Council, China held 395,011 tonnes of gold, India 357,760 tonnes, Mexico 6,799, Russia 422,600 and Turkey nothing. In the first quarter of this year, China held 1,885,480 tonnes, India 612,567, Mexico 119,948, Russia 2,168,300 and Turkey 293,800 tonnes.
But this renewed enthusiasm for gold is not universal. United States central bank holdings declined from 8,137,420 tonnes in the first quarter of 2000 to 8,133,460 by the first quarter of this year, while Britain’s bullion reserves were reduced from 562,928 tonnes to 310,287 tonnes.Even France, traditionally keen to hold gold, saw its reserves over that period shrink from 3,024,630 to 2,436,400.
Bit despite these reductions, the world total of gold held by central banks rose from 33,400,900 in the first quarter of 2000 to 34,023,800 in the first quarter of this year.
Earlier this year, Nick Barisheff, of the Bullion Management Group, wrote: “During the 2008 financial crisis, gold was used in international settlements as a zero-risk asset after many decades of being side-lined in the monetary system. Since then, the world’s central banks have been substantially increasing their official gold reserves.”
He added: “Gold’s old emergency usefulness resurfaced, albeit behind closed doors, at the BIS [Bank for International Settlements, the central bankers’ own central bank] in Basel, Switzerland. World official gold reserves, as of May 2017, reversed 41% of the 1967-2008 gold sales.
“The world’s central banks hold approximately 18% of all the above-ground stock of gold.”
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