Sri Lanka made right decision on gold: Central Bank Governor

Oct 06, 2010 (LBO) – Sri Lanka made the right decision in increasing the gold component of reserve assets, Central Bank Governor Nivard Cabraal said as gold prices hit fresh highs on loose US monetary policy that is driving the dollar down as well as higher real demand. About 11 percent of the central bank’s five billion dollar plus reserves are in gold now, according to the World Gold Council, a gold industry body.

When Sri Lanka purchased gold from the IMF, the metal was trading at around 1,116 dollars an ounce. This week the spot gold price is about 1,317 an ounce, or about 200 dollars higher or 18 percent higher.

Sri Lanka paid 375 million US dollars for the gold at that time and has so far gained 65 million US dollars on the 10 tonnes.

According to the World Gold Council, Sri Lanka had 15.3 tonnes of gold as official reserves by September 2010.

Though the IMF gold was bought mainly as a long term strategy, Sri Lanka’s central bank also trades a part of the portfolio. In the past two decades its portfolio had fluctuated from seven tonnes to three.

Now gold is in high demand. According to the World Gold Council, real demand for gold was up 36 percent in the second quarter of 2010 from a year earlier.

Investment demand, led by exchange