By Patrick A. Heller - Liberty Coin Service
It would be natural for those who make a living buying and selling gold to tout the ownership of the metal. It is much more unusual to see a survey, such as one released last Wednesday, where the ownership of gold is touted by professionals whom you might think would be the last to do so.
Before I tell you who they are, let me review some of the results of the survey. As you listen to these points, remember that this survey was conducted well before the upheaval in financial markets of the past couple of months.
Over 70% of those responding to this survey predicted that central banks will likely remain net buyers of gold reserves. The number one reason given for this judgment was “gold’s traditional value as an inflation hedge and store of value.”
The survey respondents considered gold as a safe reserve asset.
Compared to the prior year survey, three categories of assets were considered more attractive than before: gold, investment grade corporate bonds, and AAA-rated bonds.
In contrast, compared to a year earlier, rising government debt and super-loose monetary policies by the world’s major central banks resulted in reduced confidence in more traditional reserve currencies (with the US dollar being the prime example).
Although US Treasury debt was still considered a relatively safe asset “in the absence of a credible alternative” the second round of quantitative easing announced by the Federal Reserve after last November’s elections led to a shift of investments into shorter duration US debt.
The largest loser in investment interest over the past year was the Euro.
Here are some anecdotal comments made by some survey respondents.
“Traditionally, government bonds have been termed ‘risk-free’ assets but the Euro zone situation has made some of us change our understanding of that.”
“Both the Euro zone and the US are confronted by large deficits with simultaneously modest growth, which has influenced the value of their currencies and raised questions about debt sustainability.”
Have you been able to identify the respondents to this survey?
The survey was conducted over the winter by Central Banking Publications, the publisher of the magazine Central Banking. The 39 respondents to this annual survey were the managers of reserve assets for central banks. The respondents to this survey manage $3.5 trillion of central bank reserves, about 35% of total global reserves. For the purposes of being able to manage their own nation’s reserve assets, these respondents have the strongest incentive to refuse to acknowledge gold as a safe haven asset.
Yet, despite their aversion to doing so, these same central bank reserve managers admitted that they like the prospects for gold and had a negative outlook for major currencies such as the US dollar and Euro.
The survey’s author, Nick Carver, stated, “Gold’s quality as a store of value and fears over reserve currencies are the main reason that central banks turned net buyers of bullion in 2010.”
This survey is the first chapter in an annual book titled “Reserve Management Trends 2011” issued last Wednesday by the Royal Bank of Scotland.
Maybe you are skeptical about my having an inherent bias when I give you the reasons why you should own gold and silver as part of your assets. I can understand that skepticism. Instead, maybe you will accept a similar judgment from major financial managers who like gold’s prospects even though they are professionally loathe to admit this fact.
Patrick A Heller is the owner and General Manager of Liberty Coin Service, Michigan's largest rare coin and precious metals dealer since 1971. Mr Heller is the editor of the Liberty's Outlook Newsletter, and gold market commentator for Numismaster. In addition he is a columnist for The Greater Lansing Business Monthly, and has a radio show on WILS-AM 1320.