Lithuanian gold: where it is stored and how much you earn

At that time, the Bank of Lithuania, which manages 5.8 tonnes of Lithuanian gold, holds these assets in the Central Bank of England. euros.

Break the record

In early August, the price of gold reached a psychological value of 2 thousand. The limit of the US dollar. But on August 13, an ounce (31.1034768 grams) of the precious metal had already cost about $ 1,945.

Rasa Platūkienė, Head of the Trade Division of the Investment Management Department of the Bank of Lithuania, considered that gold can have a place even in the portfolio of a small investor.

“Traditionally, the 60/40 ratio was considered the optimal portfolio, i. and. 60 percent. shares and 40 percent. in secure (government) securities. The latter now guarantee negative returns, which is why market participants strongly question this definition of an optimal portfolio that has been around for many decades. It is said that 40 percent. the diversifier itself should diversify further by exchanging some of the government securities for gold, ”he said on the Bank of Lithuania website published on August 7.

Tomas Garbaravičius, Advisor to the Chairman of the Board of the Bank of Lithuania, made a similar statement.

“Gold can have its place in the investment portfolio. However, it is not a very suitable investment for the population, because its price is very volatile, difficult to predict. Circumstances can change quickly, a coronavirus vaccine may be enough and then the price of gold can go down, “he warned.

For his part, Vytautas Plunksnis, chairman of the board of the Investors Association, told Delfi that gold can be attractive in times of hyperinflation.

“Gold is perceived by many as a means of preserving the value that has served that function for thousands of years. On the other hand, the main disadvantage of gold is that it does not generate income and you have to pay to own or store it.

If you have physical gold, you will need to take care of how to protect it. If you have through financial instruments, you will also have to pay certain fees.

There is a lot of discussion right now about what will happen to the stock markets, what will happen to the economies. There are those who say that there may be a hyperinflation scenario. For these reasons, gold is attractive, but in my opinion, assets that do not generate income are not very good for a small investor, “he said.

The interlocutor agreed with R. Platūkiene that gold can have a 40 percent stake. Portfolio “diversifier”.

“Bonds generate extremely low returns and the risk has increased. You need to consider how to replace them, but if it really is gold, you would not be so sure. 5-10% is still understood, and because of the larger parts you need to have a clear conviction that gold will become more expensive, ”said V. Plunksnis.

Lithuanian Gold Employee

Speaking on the Bank of Lithuania website, T. Garbaravičius said that since the restoration of Independence, Lithuania has 5.8 tons of gold, the value of which fluctuates around 300 million LTL. euros.

“It’s about 7 percent of all of our shares,” he said.

T. Garbaravičius said that gold is a specific asset, but still important.

“When times are turbulent, its importance and value increase. This is the case today (and usually is) for three main reasons. First, global uncertainty has increased enormously for economic and geopolitical reasons. Measures taken to bail out economies are feared to increase inflation in the long run. It is true that we cannot be sure of that, because until now central banks have not been able to create it.

The second reason is that there are not so many alternatives. Safe alternatives generate negative returns. Gold must be stored, but there is an expectation that its value will continue to increase.

The third reason is the expectations formed. An important part invests because others invest. This is a bubble sign. However, while there is so much uncertainty, there are no signs that the “gold rush” is going to change, “the central bank spokesman said.

For his part, R. Platūkienė said that the Bank of Lithuania uses two financial instruments to invest in gold, namely, gold term deposits and gold swaps.

Gold deposits are one of the riskiest transactions in terms of credit risk, since they do not have legal pre-contracts between the counterparties. As a result, LB makes very few time deposits and is limited to central banks. The interest rate on these deposits is historically one of the lowest in the market, fluctuating around 0 percent.

Gold swaps are transactions preceded by standardized international contracts between counterparties. This is important because it protects against market risk and compensates for losses arising from the bankruptcy of the counterparty. These are safe financial instruments and LB relies on them primarily when it comes to investing in gold.

The essence of a gold swap is the temporary exchange of gold for another currency for a fixed period of time, with the obligation to exchange the gold in the future at the price established at the time of the transaction. Basically, in such transactions we get a financial return on the difference in the interest rates of different currencies in separate periods, “he said.

R. Platūkienė revealed that the average investment return on gold swaps is 0.35 percent, and over the past 10 years, the average return has reached 0.4 percent.

“It just came to our knowledge then. They have earned more than 8 million in 10 years. Euros. T. and. 800 thousand each. Euros,” he said on the network.

In 2020, the Bank of Lithuania transferred LTL 13.771 million to this year’s state budget. contribution to profits of 8.4 percent. more than in 2019. Last year, the Bank of Lithuania earned a total of LTL 25.445 million. profit in euros.

No plans to bring back

5.8 tons of Lithuanian gold are stored at the Central Bank of England.

R. Platūkienė said that the Bank of Lithuania does not incur gold storage costs, as the counterparties pay for the storage of the invested gold.

“There are isolated cases, episodes, in which the conditions are really unfavorable for investment and it is impossible to win something. Then some of the gold is stored in the vaults of the Central Bank of England. There is a charge for that storage, but the fee is small compared to the investment income.

It amounts to 3.5 pence for a gold bar per day. If the LB kept all its gold without investing in the Central Bank of England for the whole year, it would cost us 6 thousand. pounds or just over 6.5 thousand. euros.

We earn an average of $ 800,000 a year from the gold interest rate risk factor. EUR, it’s 6 thousand. it’s a ridiculous amount, “said a central bank spokeswoman.

For his part, T. Garbaravičius explained that if Lithuania wants to earn something with its gold, it must keep it in London or New York, in the gold financial centers of the world.

“If it had been transported and stored in Lithuania, we would have to protect it ourselves and we would no longer be able to use it. Poland, for example, has recovered some of its gold in recent years. Not many reasons were given. I’d say it’s more like a political and symbolic gesture. One reason may be preparation for “black day”, but in our case, the value of gold is not high. On the other hand, it may be a sign that times are turbulent. Currently, some states the east are increasing their gold reserves. Geopolitical influence is growing, “he said.