Reflections on the Gold Market
Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank
LBMA Conference, Montreux, 26.06.2006
Even if gold has lost its role as an anchor for the international monetary system, it does not mean that it has become a commodity like any other. In particular the investment motive is a much more important driver in the gold market than for other commodity markets. Changes in the desired gold holdings of central banks and private investors have a big impact on the gold price. Every long term forecast of the gold price is based on specific assumptions on investment demand and other specific features of the gold market, assumptions that can vary enormously. Thus, long term forecasts of the gold price are very speculative.
Despite the demonetisation of gold, the yellow metal continues to have a special significance for central banks. More than any other types of investment, gold serves to ensure the capacity to act in extreme crisis situations. The gold price often moves in exceptional circumstances in the opposite direction to financial assets, in particular to the US dollar. This 'insurance function' however has a cost: in the long term, gold has been less profitable than other financial assets.