The Central Bank of Portugal likes gold

While we usually comment on company-specific updates, one event caught our eye earlier this week. The London Bullion Market Association (‘LBMA’) is hosting its annual event in Lisbon this week and one of the keynote speakers was Helder Rosalino, a long-standing member of the board of directors of the Central Bank of Portugal. His biography is quite interesting as he has been working for the Banco de Portugal for almost three decades and was appointed to the board of directors almost a decade ago.

Needless to say his words carry some weight and although you can obviously expect that his speech ‘caters to the crowd’ and a certain pro-gold stance was to be expected, his keynote speech was actually quite interesting as it is quite rare to see a valued member of a Central Bank openly defending gold.

In a way, he was talking his own book. The Central Bank of Portugal owns almost 400 tonnes of gold and is the sixth largest gold owner in Europe and among the central banks, it is the 14^th largest owner of gold in the world and owns more gold than for instance the United Kingdom.  Almost half of its gold is stored in Portugal with the remainder stored in London, Paris and the Bank of International Settlements. No gold is held at the Federal Reserve.

So, Portugal likes gold. But there’s a difference between passively liking gold (like Germany and it’s 3,360 tonnes of gold) while avoiding public disclosure, and being an active cheerleader for the yellow metal. You can read Mr. Rosalino’s entire keynote speech here, but we wanted to highlight some interesting comments.

Gold is a highly liquid asset that can be easily sold in case of emergency to address urgent liquidity needs of the government or to conduct foreign exchange operations. Gold is the only reserve asset that is free from political and credit risk. 
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Looking ahead, gold will continue to be a key element in our reserve management strategy, especially considering the level of uncertainty about the future economic outlook. 
[…]
Even in this context of dollar strength, gold has outperformed equities and sovereign bonds. 
Let me finish by reaffirming my belief that gold is, and will continue to be, an essential element of an investment portfolio; it offers attractive returns in good times, protects the portfolio from losses in turbulent times, offering some protection against inflation over the long term. 

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