The Central Bank of Bosnia and Herzegovina (CBBH) increased the share of monetary gold in the total foreign exchange reserves portfolio last year, in line with its new strategic orientation, by purchasing additional gold.
The share of monetary gold, according to data at the end of February this year, in the total foreign exchange reserves of the CBBH is around 3.5 percent. During 2024, the Central Bank of Bosnia and Herzegovina purchased an additional two tons of gold and the current profit on this basis is 21.4 million euros.
“This amount is the largest amount of monetary gold that the CBBH has ever owned since its establishment. The level of participation of monetary gold in total foreign exchange reserves is affected by the market value of gold, which is a variable category, but also the total level of foreign exchange reserves, which changes daily depending on the demand for domestic currency,” the CBBH told Feni.
Due to legal restrictions, the CBBH has a limited number of instruments in which it can invest its foreign exchange reserves, and it is estimated that gold, even with a relatively small share, contributes to diversification.
Gold, as an asset that is preferred for protection against geopolitical and financial risks, has a positive contribution to portfolio diversification, which aims to protect against financial risks, as well as for protection against credit risk.
The amount of gold that the CBBH can hold in its portfolio is determined in accordance with the legal framework, as well as strategic orientation. According to the strategic orientation of the CBBH, which is based on the estimated level of market risk that a central bank operating under a currency board arrangement can assume, in 2024 it was estimated that there is room for increasing the share of monetary gold in the CBBH foreign exchange reserves portfolio. In accordance with the above, the CBBH purchased an additional amount of gold.
“The price of gold, with occasional short-term corrections, is recording an upward trend. As gold is perceived as a safe asset for hedging against geopolitical and economic instability, and due to concerns about trade tensions and a potential global recession, investors are increasingly investing in the same thing, which also supports price growth,” the Central Bank of Bosnia and Herzegovina points out.
They emphasize that the CBBH is closely monitoring developments in the financial markets and, as before, will make all future decisions based on legally prescribed restrictions, as well as all other relevant factors.
Professor at the Faculty of Economics of the University of Sarajevo Adnan Rovčanin says that gold is one of the (most) safe forms of investment, especially in conditions of risk and uncertainty, such as those currently prevailing in the world.
“This is also one of the key reasons why, in conditions of heightened risk and uncertainty, investors are “fleeing to gold”. Therefore, the demand for gold has increased significantly, and the price of gold has reached a historical maximum”, stated Rovčanin.
Generally, as he added, investing in gold is worthwhile, and this is also shown by the historical trend of gold price growth, with oscillations caused by global economic, political and other developments.
“However, investing in gold also depends on the investor’s attitude and expectations. Does the investor prefer minimizing risk or maximizing return on investment? These are the two basic criteria for portfolio selection. The first criterion – minimizing risk – favors investing in gold as a safe investment. The second criterion is more in favor of other forms of investment that bring, in addition to capital gains (return on price growth) and returns on invested funds (dividends, interest, profit),” said Rovčanin.
The expert team of the Central Bank of Bosnia and Herzegovina, led by Governor Jasmina Selimović, according to him, certainly used relevant information on the basis of which it made a detailed analysis of the current situation, as well as assessments of overall future global trends, which are crucial for gold price movements.
“Therefore, I am sure that the decisions of the CBBH are optimal and rational. This is an “active approach” to managing the Central Bank’s portfolio – rebalancing the portfolio in accordance with market and other changes,” added Rovčanin.
He noted that there is nothing “reliable” when it comes to investments and that they are always accompanied by greater or lesser risk. The very definition of investment: “…we invest today with the aim of achieving returns in the future…”, also contains risk. The future always and inevitably implies uncertainty and risk.
“If it were different and if we could predict the expected returns (results) of our investments with complete certainty, then we would all be billionaires ‘overnight’. What might not be a bad thing?! However, investments should be distinguished from speculation, which implies short-term investments with expected earnings based on the difference in price. What makes investing particularly complex, including investing in gold, are the overall: economic, political, social, and even climatic and other changes. These, as well as many other factors, determine the justification for investing in gold. Therefore, the results of our investments will depend on how reliably we can predict these systemic (inevitable) risks,” said Rovčanin.
Gold prices rose another 0.6 percent on Friday to a record $3,073 an ounce. The price of gold has risen more than 17 percent this year, on track for its biggest quarterly gain since 1986, amid uncertainty in financial markets.
