Confusion about alleged increase in British gold reserves . - To date, “only” central banks in emerging economies have replenished their gold reserves. That said, we can well imagine that western central banks will also buy gold in the future.

By Commerzbank Commodity Reserch

There were rumours again yesterday that a western central bank had restocked its gold reserves or is planning to do so. In a speech, UK Chancellor of the Exchequer George Osborne said that the United Kingdom was planning to seize the opportunity to rebuild its gold reserves which are at historically low levels. What is more, the value of the UK’s current gold reserves has risen to £11 billion.

That said, the increase in the value of the gold reserves is attributable solely to price effects. According to data from the World Gold Council (WGC), the United Kingdom held 310.3 tons of gold as of January. Based on a price of £1,100 a troy ounce, this gives the total value of £11 billion mentioned by Osborne. In addition, it is clear from the WGC’s statistics that the United Kingdom did not purchase any gold last year. The market appeared unperturbed by Osborne’s remarks and seemed not to believe them – rightly so, as it turned out shortly afterwards.

The UK Treasury soon relativized Osborne’s statements and announced that there were no plans to top up the country’s gold reserves. At the end of February, the IMF had already caused confusion when it reported that Sweden had purchased large quantities of gold in January. This was immediately refuted by the Swedish central bank and later corrected by the IMF. To date, “only” central banks in emerging economies have replenished their gold reserves. That said, we can well imagine that western central banks will also buy gold in the future.