“My vision is for the CNB to have at least one hundred tons of gold in five years, the most in history. We need to diversify reserves. Gold fits well in a large portfolio, for example with shares and bonds,” central bank governor Aleš Michl told Práv.
He added that the bank intends to continue with purchases. The goal is to increase gold reserves above 100 tons.
The bank does not want to specify the current amount of gold in tons. “Beyond the scope of the outputs mentioned, we will not comment on further details regarding the management of foreign exchange reserves,” said spokeswoman Petra Vlčková.
Mortgage interest rates fall to five percent
CNB data shows that in ten days in October, the bank bought gold for 1.4 billion crowns, i.e. approximately one ton. For the current data, it only states the value in crowns, not the weight of gold. From the data on the structure of foreign exchange reserves for the third quarter, it can be calculated that a ton of gold was worth 1.4 billion crowns. Since then, the price of gold has gone up slightly.
My vision is for the CNB to have at least one hundred tons of gold in five years.
The bank wants to diversify the reserves and at the same time increase the expected return. “Gold currently makes up only a very small part of the reserves. One hundred tons of them would make up to five percent at the current price. It’s not little, but for example the Canadian dollar accounts for more than seven percent,” pointed out Jan Kubíček, a member of the CNB banking board, in a recent interview for Hospodářské noviny. He assumes that most of the gold would be stored abroad.
In the first nine months of this year, central banks around the world bought 800 tons of gold, according to a report by the international organization World Gold Council. China bought the most, acquiring 181 tons of metal, Poland bought 57 tons, and Turkey 39 tons. Another eight central banks bought more than one ton, including the Czech one.
In September, the foreign exchange reserves of the CNB fell by 4.7 billion euros year-on-year to 131.4 billion euros. They were higher by 1.6 billion month-on-month. Also expressed in crowns, they were lower compared to last September and higher compared to this year’s August, still reaching almost 3.2 trillion crowns. More than half are bonds, roughly a fifth are money market instruments and a fifth are shares.
For example, on the American market, the CNB’s investments in shares are linked to the S & P 500 index. This year, the bank replaced the external management of share portfolios with its own management.
Ten years since the artificial weakening of the crown
The central bank significantly expanded its reserves during the exchange rate commitment period. Exactly ten years ago, it started keeping the exchange rate above 27 crowns to the euro in an attempt to support the export-oriented Czech economy and avoid deflation. It achieved this by selling crowns and buying hundreds of billions of foreign currency.
While in October 2013, before the start of interventions, it held reserves for 895 billion crowns, in April 2017, at the end of the exchange rate commitment, they reached 3.36 trillion crowns. On November 7, ten years have passed since the introduction of the exchange rate commitment.