Archived World Gold Council Document

At a press conference following the inaugural meeting of the European Central Bank’s (ECB’s) Governing Council, its President, Wim Duisenberg, stated that, although a formal decision on the matter had yet to be taken, a consensus existed for the ECB to hold between 10% and 15% of its reserves in gold.

Although the price fell back some $6 on the news, it had recovered somewhat by the close. One important reason for the fall was that rumours - based on no objective facts - had been circulating earlier in the day that the figure would be 27.5% (very much at the high end of any previous guesstimates). There was naturally an adverse reaction when Duisenberg quoted a lower total.

Despite the initial market disappointment, the news is positive for gold:

• The ECB is the world’s most modern central bank. For it to include a respectable amount of gold in its portfolio is a significant vote of confidence in gold’s continuing role as a monetary asset.
• The majority of member states’ gold will remain in national hands. Contrary to some commentators’ statements, however, this does not mean that they will be free to do whatever they like with it.
  Members’ remaining foreign reserves are all potentially callable by the ECB and are thus in effect controlled by the System. This is why the ECB will draw up guidelines outlining the freedom national central banks will have to transact independently. Above a certain yet-to-be determined amount, they will have to seek the ECB’s approval and it is hard to believe that the latter will - certainly in the Bank’s early years - countenance large-scale sales which could have an impact on the value of its own holdings.
• It is very significant that Duisenberg - in his scripted remarks and not simply as an impromptu answer to a question - referred to gold at all. The Council has been urging the ECB to be as transparent as possible in its policy towards gold in order to minimize market uncertainty. Given that no statement at all was necessary until a formal decision has been taken, it appears that he may have been listening to our arguments.

In summary, the statement confirms that European central bankers view gold as a respectable - indeed, indispensable - reserve asset for the 21st century.