In the last year and a half, the Czech National Bank has increased its gold reserves the most since the 1990s. Gold is generally considered an insurance against inflation. However, this was not confirmed much last year, as the metal even became cheaper, despite the rapidly accelerating rise in prices worldwide.
The Czech National Bank bought gold last year. It expanded its foreign exchange reserves in gold by a total of 35,000 troy ounces of gold, which corresponds to 1.01 tons of precious metal. At the beginning of last year, it had 305,000 ounces of Troy precious metal, by the end of the year it was 340,000 ounces, or about 10.6 tons. At the end of last year, the CNB held the most gold since January 2015.
The koruna price of gold fell by 1.9 percent last year. At the beginning of the year, an ounce of metal was sold for 40,787 crowns, and at the end of the year for 40,020 crowns. The CNB’s gold assets in its foreign exchange reserves thus grew from CZK 12.44 billion to 13.61 billion crowns. The value of gold in the CNB’s foreign exchange reserves, in the Czech Republic’s “golden treasure”, thus increased by 1.17 billion crowns last year.
Return to gold
The CNB radically reduced its foreign exchange reserves in gold in 1998. Between 1997 and 1999, its gold reserves fell from 2.08 million troy ounces to 446 thousand ounces. Since then, gold reserves have been gradually declining until May 2020, when they amounted to 252,000 ounces, corresponding to historically record lows.
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From June last year to December last year, the CNB therefore expanded its gold foreign exchange reserves by 88,000 troy ounces. Over the past year and a half, the value of gold in its foreign exchange reserves has increased from 10.53 billion crowns to the above 13.61 billion crowns, ie by 3.1 billion crowns. In the past year and a half, the CNB thus expanded its gold reserves most markedly since the 1990s. However, an ounce of gold is now about 1,800 crowns cheaper than about a year and a half agowhen she started her renewed buyout.
Inflation insurance?
Gold is generally considered an insurance against inflation. However, this was not confirmed much last year, as the metal even became cheaper, despite the rapidly accelerating rise in prices worldwide.
Over the past ten years, yellow metal has appreciated by 12.7 percent in the dollar traded worldwide and an average of 1.2 percent annually. After conversion to crowns, it appreciated by seventeen percent, an annual average of 1.6 percent. With an average annual inflation in the years 2012 to 2021 of 2.1 percent in the Czech Republic, this means that gold did not provide the proverbial protection against inflation even then.
Over the past decade, standard equity investment has protected much more from the effects of inflation than gold. For example, those who invested in the main index of such a Copenhagen stock exchange ten years ago are still gaining more than 400 percent appreciation, even with dividends. The Bucharest Stock Exchange earned about 370 percent in crowns, including dividends, during that time.
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Those who have invested in accordance with the main index of American shares, Standard & Poor’s 500, have almost 370 percent more with dividends in crowns. The main index of the Prague Stock Exchange, PX, has yielded about 150 percent over the last ten years, with dividends. According to Eurostat, Czech real estate appreciated by about one hundred percent between 2010 and 2021.
The most significant Czech, and especially American, shares have thus completely disappeared inflation in the past ten years, as have domestic realities, while gold – the alleged insurance against it – has not even covered it. However, the CNB also buys gold for reasons other than inflation protection. It thus diversifies its very large portfolio of foreign exchange reserves on a global scale.
Gold is coming back underground. Czechs buy bricks and bury them in the garden
Fear of inflation, uncertainties associated with the pandemic and growing mistrust in the ability of politicians and economists are driving Czechs to feverishly buy gold bars. At the same time, they are slowly coming. Is it worth buying gold now?
I like gold, says the candidate for minister of industry and trade. Who is Jozef Síkela?
In the emerging government of Petr Fiala, Jozef Síkela is the new candidate of the STAN movement for the post of Minister of Industry and Trade. He is a financier with 30 years of experience in the field. In the world of money, he belongs more to the Conservatives, who are reserved about cryptocurrencies and prefer gold.
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