Working Paper: NBER ID: w17894
Authors: Joshua Aizenman; Kenta Inoue
Abstract: We study the curious patterns of gold holding and trading by central banks during 1979-2010. With the exception of several discrete step adjustments, central banks keep maintaining passive stocks of gold, independently of the patterns of the real price of gold. We also observe the synchronization of gold sales by central banks, as most reduced their positions in tandem, and their tendency to report international reserves valuation excluding gold positions. Our analysis suggests that the intensity of holding gold is correlated with 'global power' - by the history of being a past empire, or by the sheer size of a country, especially by countries that are or were the suppliers of key currencies. These results are consistent with the view that central bank's gold position signals economic might, and that gold retains the stature of a 'safe haven' asset at times of global turbulence. The under-reporting of gold positions in the international reserve/GDP statistics is consistent with loss aversion, wishing to maintain a sizeable gold position, while minimizing the criticism that may occur at a time when the price of gold declines.
Keywords: Central Banks; Gold Holdings; International Reserves; Economic Power
JEL Codes: E58; F31; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Intensity of holding gold (L72) | Global power (F01) |
| Tendency to underreport gold positions (G41) | Loss aversion strategy (G41) |
| Gold holdings (E42) | Economic status of countries (O57) |