At a time when Hong Kong is ramping up its infrastructure to handle Gold reserves for central banks globally, Goldman Sachs just put out a report discussing both the recently ramped up buying of the metal by CBs and the dilemma over where to store it geographically. Perhaps GS is preparing for the inevitable rise of HK in global gold reserves held.

The picture the bank paints is one in which central banks are reconsidering both the amount of gold they own (they want more) and where they keep it. London and New York remain central because of their liquidity and financial infrastructure, but reserve managers are increasingly hesitant to rely on a single foreign custodian. At the same time, official-sector purchases are accelerating again, reinforcing the bank’s view that reserve diversification is the central structural force driving gold prices.

 

The report, titled Precious Comment: Gold and Central Banks: Storage Dilemma; Buying Trend Picks Up covers those two main topics in short and long order amongst other areas of interest.

1. Where Central Banks store their gold is increasingly a concern

   The World Gold Council’s survey indicates that the Bank of England remains the preferred custody location among reserve managers (57% of respondents), but central banks are increasingly diversifying where they store their gold.

2. Banks are buying more again.

   Central Banks added 57 tonnes of Gold in the OTC markets operating in London and Switzerland with China buying the lion’s share.

    

ETF Buying Returns

The other significant observation they make is that Gold’s rally since the mid-July bottom reflects a recovery in investor purchases definitely related to Fed hike fears fading.

The rest of the report is in Q & A form.