Harvard Professor Urges EMs To Buy Gold
By Kitco NewsTuesday May 03, 2016 16:28
(Kitco News) - Emerging market economies need to shy away from the U.S. dollar and U.S. treasuries, and instead invest more in gold, this according to one Harvard professor.
Tuesday, in a commentary for Project Syndicate, Kenneth Rogoff, professor of Economics at the Ivy League university and former chief economist at the International Monetary Fund, recommended that emerging economies boost their gold reserves to about 10%, which would still keep them below some developed country’s gold reserves.
“Emerging markets have remained buyers of gold, but at a snail’s pace compared to their voracious appetite for U.S. Treasury bonds and other rich-country debt. As of March 2016, China held just over 2% of its reserves in gold, and the share for India was 5%. Russia is really the only major emerging market to increase its gold purchases significantly, in no small part due to Western sanctions, with holdings now amounting to almost 15% of reserves,” he said in the article.
Rogoff argued that emerging markets would get more from their gold investments than they would from government bonds from developed nations like the U.S., Germany or Japan. He explained that competition for developed country government debt is helping to keep bond yields low.
Many analysts have noted that strong demand for government bonds have pushed yields into negative territory. In March, the World Gold Council estimated that $8 trillion of high-quality sovereign debt have negative yields.
Rogoff said that gold is a better investment for emerging markets because there is no limit on its price.
“Moreover, there is a case to be made that gold is an extremely low-risk asset with average real returns comparable to very short-term debt. And, because gold is a highly liquid asset – a key criterion for a reserve asset – central banks can afford to look past its short-term volatility to longer-run average returns,” he explained.
Rogoff's commentary comes as gold prices are flirting around $1,300 an ounce, its highest level since January, 2015. Since the start of the year gold has gained more than 21% as one of the best peforming assets for the year.
By Neils Christensen of Kitco News; nchristensen@kitco.com
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