Bangladesh’s investment in the form of gold has gained value by over 37 per cent to reach around US$554 million over the last 10 years.
The country’s central bank, for the first time on September 07, 2010, had purchased 10 tonnes of gold from the International Monetary Fund (IMF) by investing US$403 million to diversify its foreign currency reserve.
Through this purchase, the Bangladesh Bank (BB) increased its gold holding to 13.5 tonnes from 3.5 tonnes earlier to minimise foreign currency valuation losses caused by the volatility in the global foreign exchange market.
“We purchased gold from the IMF with a view to diversifying our foreign currency reserve,” Dr Atiur Rahman, who was heading the central bank in 2010, told the FE while replying to a query.
Dr. Rahman also said the central bank should invest a certain portion of the country’s forex reserve in gold.
Gold’s share of Bangladesh’s foreign exchange reserve rose to around 5.0 per cent in 2010 from 1.3 per cent earlier. But it fell to nearly 2.0 per cent on March 15 this year, which was the lowest in South Asia.
The former BB governor still prefers investment in the precious metal from the reserves, saying that “gold has an ethical value.”
The unrealised return on such investment stood at more than $150 million as on March 15 despite the volatility of gold prices in the international market, according to officials.
Such gain, in terms of valuation, has been shown in the BB’s financial statement in assets side as well as equity part each fiscal year in line with the international accounting standards (IAS), they added.
Despite higher returns, the central bank did not go for fresh investment in the yellow metal even in 2020, the year of Covid-19 pandemic, when the central banks of some other countries had expressed their willingness to enhance their investment portfolios in gold to avert uncertainty.
Actually, the BB is not interested in purchasing the precious metal from the international open market to prevent any type of risks in the future, they explained.
“We’re not interested in buying the precious metal from the open market excepting the auction of the IMF or any central banks,” a BB senior official told the FE while explaining the investment strategy for the gold.
The central bank may think of investing more in gold in the future if its price becomes normalised, according to the central banker.
The price of the precious metal jumped by more than 38 per cent per ounce (oz) to $1730 on March 15 this year from $1252 on September 07, 2010, according to the World Gold Council (WGC) data.
It reached a historical high of $2,067.15/oz in early August 2020 mainly due to higher uncertainty cast by the Covid-19 pandemic.
However, a decline in infections, opening up of economies, increase in vaccination pace and the surge in equities market have diminished the appeal of the yellow metal in recent months, according to analysts.
Meanwhile, the price of gold has dropped by nearly 11 per cent to $213/oz in the last six months as a result of the falling trend of coronavirus infection along with boosting vaccine programmes in different parts of the world, they added.
Normally, gold is considered as a ‘safe haven’ asset in times of recession as it is less volatile than other investments.
According to the 2020 Central Bank Gold Reserves (CBGR) survey, conducted by the WGC, some 20 per cent of central banks intend to increase their gold reserves over the next 12 months, compared to just 8.0 per cent of respondents in the 2019 survey.
The increase is particularly notable as central banks’ buying has reached record levels in recent years, adding around 650 tonnes in 2019 alone, it added.
The Covid-19 pandemic raised uncertainty by compounding existing risks and creating new ones. But by the end of the last year, investors were optimistic that the worst was over, the WGC said in its Gold Outlook 2021.
“In our outlook for gold, we believe investment demand will remain well supported while gold consumption should benefit from the nascent economic recovery, especially in emerging markets,” the WGC predicted.
Currently, Bangladesh holds around 14 tonnes of gold, which is nearly 2.0 per cent of its foreign exchange reserves worth $43.01 billion as of March 15 this year.
In terms of gold holding in reserves, Bangladesh’s ranks fourth position among South Asian countries, according to the International Monetary Fund (IMF)’s latest statistics, compiled by the WGC.
India secures top position among the South Asian countries with holding of nearly 677 tonnes of precious metal, which is equivalent to nearly 7.0 per cent of its reserves, in value terms.
Pakistan holds the second position in the region with a stock of nearly 65 tonnes of gold, which is more than 21 per cent of its foreign exchange reserves.
Around 4.0 tonnes of gold, out of a total of 14 tonnes, have been deposited by the law enforcing agencies as ‘seized gold’ in the central bank’s vault since independence of Bangladesh.
The central bank includes such gold in the country’s foreign exchange reserve after completing official formalities, said another central banker.
“We include the gold in the reserves after settling legal matters,” he said, adding that the BB holds the ‘seized gold’ in its vault as a custodian, not owner.
The central bank buys the gold from the law enforcing agencies concerned after settling legal disputes, according to the central banker.
“Physical gold and silver are stored at the Motijheel branch of the BB and the Bank of England,” he said.
A major portion of the country’s foreign exchange reserves has already been invested in different top-rated commercial banks and long-term bonds in the US dollar.
On the other hand, a few portions of the reserves have been invested in the Euro, Great Britain Pound (GBP), Australian dollar, Canadian dollar, Singapore dollar, Chinese renminbi and Japanese yen.
Gold is a precious metal with a number of practical uses, particularly in technology. However, most of the demand for gold worldwide is as an investment, particularly by central banks.
