Central Banks Say Gold Most Important Reserve Asset In 25 Years

UBS recently surveyed more than 80 central bank reserve managers, sovereign wealth funds and multilateral institutions at an annual conference. The results of the survey revealed that nearly a quarter of central banks believe gold will become the most important reserve asset in the next 25 years.

Apart from the positive long term prospects of gold, the same survey revealed that central bankers believe gold will be the best-performing asset class in the next six months, ahead of equities, bonds, oil and currencies, according to the poll.

The results of this most recent survey show a drastic change in the attitudes of central bankers and investors towards their view of Gold and it’s function as a hedge against inflation, as a reserve currency, and as an investment.

For over 20 years, central banks around the world were net sellers of gold. However, more recently this trend has done a 180, as central banks in Europe are scaling down their sales and others, such as China, India and Russia, are making significant purchases.

According to the Russian Central Bank, Russian gold reserves were hiked 1.1 million ounces in May. Current global mining production is just 6.8 million ounces a month, this represents 16.1% of monthly global mining production.

This is the largest one month purchase of gold by the Russian Central Bank, which has been buying gold at a rate of 250,000 ounces a month for the past three years. All in all, this means Russia is quadrupling its gold purchases and meanwhile, Russia’s president Putin is pushing for a single world currency and last week revealed the currency’s first proof coin.

Back in the middle east, Saudi Arabia just announced that it has more than doubled its gold holdings from 143 tons in the first quarter of 2008 to 322.9 tons. That’s 241,000 ounces a month, about the same as the massive Russian increase.

It’s still unclear what China is currently doing as far as increasing their gold reserves because they’re being very secretive about their intentions and actions. However, one thing is for sure, China isn’t selling any gold. Between 2003 and 2009, China’s central bank bought an average of 76 tons of gold a year. That amounts to approximately 185,000 ounces a month. The likelihood of China slowing its purchases is non existent.

China will most likely not want to be outdone by Russia and Saudi Arabia, and will almost surely want to ramp up it’s gold hoarding on par with Russia and other central banks. Even if China is purchasing just 250,000 ounces a month, that would mean just three central banks are sucking up 24% of global gold mine production. In all likelihood, China’s gold purchasing is probably much much higher, given the fact that it needs to shore up it’s currency with something of value other than fiat dollars.