As reported yesterday by the World Gold Council, central banks have continued to swap U.S. dollars and euros for gold. The council explains that "while the dollar is still the primary global currency, its long-term dominance is less certain. In response, central banks are reducing allocations to U.S. dollars and euros while increasing purchases of traditional assets such as gold and Japanese yen."
While I can see high demand for the gold, I hope the Council has the Japanese yen part wrong because it has done nothing but lose value over the last few months. For more on that, I have written another article here.
Other takeaways from the report:
- Official reserves of global central banks is up to $12 trillion! (6Xs the amount in 2000).
- Also up is reserves in non-U.S. dollar currencies (up 3Xs over the same 12-year period)
- 4th quarter of 2012 was the eighth consecutive quarter of net purchases, and the highest level since 1964.
- Average daily trading volume of gold is estimated at $240 billion.
- Other alternative reserve currencies that are being demanded for reserves include the Canadian dollar, Australian dollar, Swiss Franc, Danish Krone, and Chinese Renminbi.
In addition to currency and metal reserves, other tangible assets could be used to store value. As I read recently, one very creative option being employed is the purchase of land in other countries. To be more specific, it was announced in June of 2011 that land in Argentina was being purchased by China for its access to water resources. I believe this, in addition to the increased gold purchases, shows clearly that a shift towards holding tangible items for reserves has begun.
As of today, gold trades at $1585.05 per ounce and SPDR Gold Shares' (GLD) one-year performance can be seen below: