Gold Deposit Rate Earned by Central Banks Saw Notable Decline Since 1999

SEATTLE (Scrap Monster): The World Gold Council (WGC) announced publication of a new report that focuses on gold deposit rates earned by central banks.

According to the report, central banks are provided with two key ways by which they could actively manage their gold reserves in order to generate additional returns. The first among them is to lend out the gold reserves to earn gold deposit rates. In other words, the central banks will place gold on deposit with a bullion bank, in return for a deposit rate. In addition, the banks could also swap their gold for dollars at swap rate.

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In between 1989 and 1999, the gold deposit rate acted as a decent source of income for central banks. During those times, the yearly gold lease rate had averaged at 1.4%. Since then, there has been a substantial decline in deposit rates. The rates averaged only around 0.54% between 2000 and 2009. In the next ten years, it further dropped to average at nearly 0.24%, the report said.

The report states that gold lease rates often take random and unpredictable paths in normal times, although certain factors tend to drive the changes. In general, a fall in borrowing demand leads to decline in gold deposit rates. Alternatively, gold deposit rates are bound to fall when the gold market is oversupplied relative to demand.