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Central Banks and Gold Puzzles

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  • Aizenman, Joshua
  • Inoue, Kenta

Abstract

We study the curious patterns of gold holding and trading by central banksduring 1979-2010. With the exception of several discrete step adjustments,central banks keep maintaining passive stocks of gold, independently of thepatterns of the real price of gold. We also observe the synchronization of goldsales by central banks, as most reduced their positions in tandem, and theirtendency to report international reserves valuation excluding gold positions.Our analysis suggests that the intensity of holding gold is correlated with ‘globalpower’ – 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. Theseresults are consistent with the view that central bank’s gold position signalseconomic might, and that gold retains the stature of a ‘safe haven’ asset at timesof global turbulence. The under-reporting of gold positions in the internationalreserve/GDP statistics is consistent with loss aversion, wishing to maintain asizeable gold position, while minimizing the criticism that may occur at a timewhen the price of gold declines

Suggested Citation

  • Aizenman, Joshua & Inoue, Kenta, 2012. "Central Banks and Gold Puzzles," Santa Cruz Department of Economics, Working Paper Series qt7bx7h0q4, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt7bx7h0q4
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    1. Aizenman, Joshua & Inoue, Kenta, 2013. "Central banks and gold puzzles," Journal of the Japanese and International Economies, Elsevier, vol. 28(C), pages 69-90.
    2. Beckmann, Joscha & Berger, Theo & Czudaj, Robert, 2015. "Does gold act as a hedge or a safe haven for stocks? A smooth transition approach," Economic Modelling, Elsevier, vol. 48(C), pages 16-24.
    3. Aye, Goodness C. & Carcel, Hector & Gil-Alana, Luis A. & Gupta, Rangan, 2017. "Does gold act as a hedge against inflation in the UK? Evidence from a fractional cointegration approach over 1257 to 2016," Resources Policy, Elsevier, vol. 54(C), pages 53-57.
    4. Joscha Beckmann & Theo Berger & Robert Czudaj, 2014. "Does Gold Act as a Hedge or a Safe Haven for Stocks? A Smooth Transition Approach," Ruhr Economic Papers 0502, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    5. Beckmann, Joscha & Czudaj, Robert, 2013. "Gold as an inflation hedge in a time-varying coefficient framework," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 208-222.
    6. Joscha Beckmann & Robert Czudaj, 2012. "Gold as an Infl ation Hedge in a Time-Varying Coeffi cient Framework," Ruhr Economic Papers 0362, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    7. Vyacheslav Dodonov, 2022. "Gold as a Factor of Change in Central Bank Reserves in Periods of the Financial Markets Turbulence: the Case of Kazakhstan," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(2), pages 209-224.
    8. Aye, Goodness C. & Chang, Tsangyao & Gupta, Rangan, 2016. "Is gold an inflation-hedge? Evidence from an interrupted Markov-switching cointegration model," Resources Policy, Elsevier, vol. 48(C), pages 77-84.
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    11. Zhao, Yanping & Chang, Hsu-Ling & Su, Chi-Wei & Nian, Rui, 2015. "Gold bubbles: When are they most likely to occur?," Japan and the World Economy, Elsevier, vol. 34, pages 17-23.

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