Central Banks Will Buy More Gold; The U.S. Dollar Will Retain Its Position - Former New York Fed Exec.
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(Kitco News) - Global central bank interest in gold is growing and has roomto grow according to one former senior executive at the New York FederalReserve.
That growing sentiment could be felt during the LondonBullion Market Association’s 2018 precious metals conference, which includedmore than 30 delegates from central banks around the world.
In an exclusive interview with Kitco News during theconference, Timothy Fogarty, international banking expert and former senior vicepresident at the New York Fed said that he could see more central banks buyinggold as they diversify their assets and build up collateral in their foreignreserves.
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| Timothy Fogarty, international banking expert and former senior vice president at the New York Fed |
“Gold will always have utility as an investment asset,” hesaid. “As an investor -central bank or not - if your portfolio grows largeenough, you are going to diversify. And gold should undeniably be part of thatdiversification. That is classic good governance, good management.”
“Gold’s niche is that it’s nobody’s liability,” he added.
Fogarty said that he sees the potential for further centralbank diversification as a years-long process that should continue to supportgold prices.
Although Fogarty sees potential for the yellow metal, healso said that he does not expect the U.S. dollar to lose its status as theworld’s reserve currency anytime soon. Although central banks are buying gold,Fogarty pointed out that in a financial crisis the demand is still for U.S.dollars.
“During the last financial crisis, I don’t think we saw anymonetization of central bank gold to provide the necessary liquidity to marketsand the banking systems. The need, globally, was for U.S. dollars,” he said.“The dollar’s role in the world is still strong and I don’t see that changingin the long term.”
Fogarty noted that by law the Federal Reserve is not allowedto hold gold. The U.S. Treasury manages the nation's gold reserves. He addedthat he doesn’t expect that the U.S. government will be changing any policiesconcerning the gold reserve, nor adding to its gold holding.
For central banks that are buying gold, Fogarty had someadvice, which he admits might sound a little controversial given the trend forcentral banks to pull gold reserves back to their own locations: keep the goldin a major financial hub.
Fogarty admitted that gold can have a visceral hold on anation’s psyche and for some that might translate into the notion that it’sessential that gold be kept within their country’s sovereign borders. However,Fogarty said that such gold may end up being nothing more than window dressing.
“If you have to mobilize your gold in a crisis you want tobe able to do it very quickly, safely and in an efficient and cost-effectivemanner,” he said. ‘That might be pretty hard to do, especially in extremis, ifthe gold is not held within a major financial center.” Gold location would also become veryimportant if the gold lending market were to recover to the point of beingeconomically advantageous to central banks.
Another somewhat controversial question Fogarty raised iswhy central banks need to hold physical gold. He added that gold-backedexchange traded products (ETFs, for example) might be another way for centralbanks to gain exposure to gold’s investment properties.
A current U.S. central bank executive also voiced supportfor the yellow metal during the conference. Ray Testa, currently a senior vice presidentof the Markets Group at the New York Federal Reserve, noted in his welcomemessage to delegates that gold and U.S. history are entwined and observed that "...goldplays a necessary part of a balanced portfolio,” he said.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.  |