Central banks seen gold over currencies

NEW YORK: Gold trumps other currencies as the reserve asset of choice for central banks looking to diversify away from the US dollar and the euro, a report by industry group World Gold Council (WGC) said on Wednesday.

Bullion's deep and liquid market with no credit risk should make it one of the most attractive assets for central banks' reserve portfolios compared to other alternatives such as the Chinese yuan and the Australian dollar, the WGC said.

"Building gold reserves in tandem with new alternatives is an optimal strategy as central banks remain under-allocated to gold," Ashish Bhatia, WGC's manager for government affairs, said in a statement.

"Many attractive alternatives are either too small or, as is the case with the (yuan), not yet open to broader international participation," Bhatia said.

The WGC is funded by the gold industry to promote the precious metal.

The report highlights renewed interest in gold by the official sector as central bankers continue to shift away from the dollar due to rising US fiscal and economic uncertainties after the 2008 economic crisis.

Global central banks as a group have become net buyers of gold since 2010. In the fourth quarter of 2012, official-sector net gold purchases rose to the highest level since 1964, the WGC said.

While official reserves of global central banks had risen to $12 trillion from $2 trillion between 2000 and 2012, the share of US dollars in global central banks' reserves fell to 54 percent from 62 percent in the period, data from the International Monetary Fund and the WGC showed.

Anecdotal evidence also suggested that euro allocations by central banks might have plateaued due to the euro zone debt crisis, the WGC said.

While high-quality alternatives such as the Chinese yuan, Australian dollars and Canadian dollars emerge as possible assets for diversification, their relatively small market size and access constraints made gold allocation more likely for central banks, the report said.

The WGC said the depth of the $3.2 trillion gold market allows central banks to have sufficient access for large investments.