Central Bank has changed its reserve management strategy to a model based scientific structure known as the Strategic Assets Allocation (SAA) which has been practiced by global central banks for many years.
Sri Lanka’s gold prices reached a new high lowering the demand of gold jewellery in the backdrop of a decline in the country’s gold reserves, underpinned by unease over mounting Coronavirus cases globally, official sources said.
Upon a thorough analysis on the international best practices and the nature of gold as a reserve asset, the Central Bank (CB) has decided to reduce the gold holding to 3 to 5 per cent of the foreign reserves until gold prices rise to appropriate levels with a continuous monitoring in the market, a CB senior official said.
The CB’s longstanding gold holding of 15 to 20 per cent over the last decade had proven to be an over-allocation.
The price of one sovereign of 24 karat gold in Sri Lanka has skyrocketed to Rs. 100,000 and a sovereign of 22 karat gold in Sri Lanka is priced at Rs. 93,000 at present. The sudden hike in the prices in the local market is as a result of the price of an ounce of gold in the global market exceeding US$1800.
Gold reserves in Sri Lanka fell 6.70 tonnes in the first quarter of 2020 from 19.66 tonnes in the fourth quarter of 2019. As gold prices inc
reased last week, gold reserves of the CB have dropped by almost $600 million this year.
CB data shows that on 31 December 2019, there was $ 954.88 million worth of gold reserves held by Sri Lanka. By 29 May 2020, gold reserves had plummeted to $372.7 million, a reduction of $582 million in a span of six months.
(LIN)