Central Bank Gold Agreements
According to the World Gold Council, on May 19, 2014 the European Central bank and 20 other European central banks signed the fourth Central Bank Gold Agreement (CBGA). The CBGA limits the amount of gold the signatories can collectively sell in any one year. There have been four CBGA to date. These agreements have provided clarity, transparency and stability to the gold markets. At the end of 2015, the central banks had collectively held approximately 31,400 tonnes of gold. These holdings are concentrated in the advanced economies of the Western Europe. This means the central banks have immense pricing power in the gold markets.
In another article by Robert Barro and Sanjay Misra titled “Gold Returns” both research professors at Harvard University, conclude that gold has never been a great hedge against bad economic times. The researchers studied gold returns during the worst macroeconomic disasters experienced globally, i.e. during periods when a country’s real per capita GDP fell by 10% or more. For the study, 56 macroeconomic disaster periods were identified from 1880 to 2011. During this period, gold’s average real rate of price appreciation was 1.50% per year from 1880 to 2011 while during the disaster periods, gold’s real appreciation averaged 2.1% per year which is marginally better than the overall mean of 1.50%.
Statistically there is no relationship between gold prices and economic growth. Gold would be a good hedge for other investments since most other investments are correlated to the performance of the economy. Owning physical gold in your self-directed IRA would hedge against investments in stocks and bonds which are all correlated to the performance of the economy.
