Gold: luster’s just dim, not lost

Just when signs of improving economic conditions put a dent on global gold prices, the World Gold Council comes up with a report that highlights the importance of the precious metal even more.
Recently, gold prices had been going downhill, with signs of economic recovery in the US tarnishing the ‘safe haven’ sheen the metal has enjoyed in the past few years. However, the World Gold Council’s recent research report advices central banks around to diversify their reserves from US dollars to other traditional assets such as gold.
It’s not as if gold has not been an object of central banks’ attention when it comes to their reserves. In fact, the metal is amongst traditional reserve assets held by central banks. However, the US dollar enjoys complete dominance when it comes to central bank reserves.
The WGC’s report, however, attempts to cloud this dominance to some extent, suggesting central banks of emerging markets to include other assets in their reserve portfolios. The reason? An uncertain outlook of the US dollar that was especially brought to light in the past few months when the US was undergoing an economic crisis.
In fact, central banks are probably cognizant of the changing role of the dollar, as quoted by CNN, “According to the International Monetary Fund, the dollar’s share of total central bank reserves has decreased to 54 percent from 62 percent over the past 12 years.”
Gold’s minimal credit risk and high liquidity make it a great alternate to the dollar and that explains WGC’s strong recommendation to include it in the portfolio of central banks’ reserves.
Though gold prices have recently been going downhill, this buying pattern by central banks is actually believed to have cushioned prices of the precious metal over the past few years. So the recent fall in prices is no anomaly, but a consequence of reduced investor interest in the wake of improving global conditions. As for central banks’ buying, it appears that this has been factored in to some extent in the metal’s bull-run witnessed across the globe.
Overall, it seems that investor interest in gold will remain subdued in 2013. Therefore, no phenomenal rise or fall seems to be in order for gold prices.