Interview with Robert Pringle
Robert Pringle has been Director of the World Gold Council's London-based Public Policy Centre since 1997. As a founder and first Executive Director of the Group of 30, and the founder of Central Banking Publications, Pringle knows his way around the sometimes arcane world of central banks.
Why did the WGC decide to form the Public Policy Centre?
The PPC was set up partly to monitor and influence developments in the gold-related business of the world's central banks and official institutions and partly to support the WGC's effort to promote liberalisation of world gold trade.
Because our members include many of the world's biggest gold mining companies, we are often accused of being partisan. Of course, we are - we speak out on behalf of gold's historical importance as a reserve asset, which has not disappeared.
There have been quite a few official sector sales in the past decade. Hasn't the WGC shut the stable door after- the horse has bolted? Some analysts feel that central banks now regard gold reserves as antiquated.
They are profoundly mistaken. In the midst of an unprecedented bull market in the equity and bond markets of the developed world, it's easy to take the view that the reasons for holding gold have diminished. But because a view is plausible doesn't mean it is right. Central bankers and others need to be reminded why, throughout history, it has been a vital part of a national economy to hold strong gold reserves - to defend the currency and to ensure that, come what may, the government would be able to carry on trading and supporting its citizens. As a financial asset, gold is no-one else's liability, is remarkably portable and liquid, and has successfully achieved what it was designed for - the preservation of long-term value. These eternal verities have become overshadowed by the culture of the fast return. We shall see what happens when the equity boom explodes or when inflation returns.
Nevertheless, there are plenty of analysts who argue that central bank gold sales will increase. Are they right?
Not at all. Some will sell, yes, but others will require gold: the net balance is likely to swing about quite a bit in the next few years. There is a lot of ill-digested rumour in the marketplace. Take the example of Switzerland. In late 1997, writers gasped at the "news" that the Swiss National Bank (SN B) was about to sell up to half of it $2,590-tonne gold reserves. Not true. The initial shock horror headlines failed to grasp the underlying complexities in this issue. We published a report in October 1998, pointing out these key facts:- any possible SNB gold sales are dependent upon one and possibly two national references, the voting for which is not a foregone conclusion.- even if approved, such sales will not start before 2001 or 2002.- the sales would then stretch over perhaps a decade and will not feed more than 100-tonnes a year into the market.
What the PPC does is to mow1t a series of initiatives - through research, lobbying, and presentations - to remind central banks and other official financial institutions of the long-term advantages of holding gold as part of a diversified portfolio. And we are hopeful that as a result of our work, some might add to their holdings. Many analysts tend to forget the acquisitions, such as Poland's purchase of 74 tonnes, which was revealed by the PPC last August.
What do you expect will happen with the gold holdings of Europe's central banks?
Much of 1998 was occupied by doomsday prophecies that the European Central Bank might announce that it would hold no or minimal gold in its reserves. It ultimately decided that 15 per cent of reserves would be in gold, a level at which most analysts had said the market would be pleased!
The bearish speculation now is that the National Central Banks (NC Bs) in the Euro system have plentiful gold that they can sell. This is not the case: the ECB will strictly control (under guidelines which it has sadly not yet published) all significant reserve transactions of the NC Bs. As part of a large monetary union, NC Bs clearly cannot be free to dispose of their gold entirely as they wish.
Official statements from key central banks reaffirm commitments not to sell, such as this from the Bank of France in June 1998: "Neither the US Federal Reserve, nor the German Bundesbank, nor the Bank of Ital y, nor of course the Bank of France plans to use the precious metal."
Where will the PPC concentrate its efforts this year?
Our contacts with Asia's central bankers, through our Asian Central Bank Advisory Board will be of crucial assistance in getting our message across to the hearts and minds of many of the region's central bankers. We are encouraged by the fact that there have been strong quasi official public statements from China suggesting that it is looking to increase the share of gold in its reserves. But we will not ignore other parts of the world, such as eastern Europe, including Russia, as well of course as the European Union.
Clearly, 1999 will not be easy. But I am convinced that the groundwork we have been laying during the past 18 months will finally begin to pay handsomely this year. Let's hope so.