and they say it openly:
Gold is durable and largely imperishable, and nobody’s liability if you hold it physically in your vaults, which frees it from default or counterparty risk.
Unlike currencies and debt instruments – which are claims on foreign governments or institutions – gold kept in your vaults isn’t subject to political manipulation or to monetary and fiscal policies.
Gold has been empirically proven to serve as an inflation hedge, although only over the long run.
Most importantly, it is widely recognised for its potential value in highly adverse scenarios. This is the so-called “war chest” value or “tail risk hedging” value of gold, which is difficult to capture in standard quantitative analyses.
However, gold should not be seen just as a dormant asset in a vault for the rainy days. Gold is an asset which offers opportunities in the financial markets. It can be used to create liquidity via gold/currency swaps or as collateral, often more cheaply than using other assets. Sometimes using options or placing deposits to enhance the return can be an appropriate strategy. From time to time, there are opportunities to take advantage of price differences between trading centres or bar sizes or the fineness of bars.
For example, there was big scarcity in Comex bars during the first part of the pandemic due to reduced refining capacity. It can be very beneficial for central banks to remain active in the gold market even if they are not buying or selling outright.
Gold has performed best when investors’ confidence is shaken by financial instability and credit issues. There are plenty of examples for exploding retail/coin demand during episodes of financial uncertainty.