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Both gold and sovereign securities – primarily US Treasuries – are liquid assets that make up foreign exchange reserves. If the monetary authority’s objective is to maintain an ample number of months of import cover in liquid foreign reserves, it should hold approximately 2.5 per cent of its foreign reserves in gold. This result is calculated using mean-variance portfolio theory, timeseries data on gold and US Treasuries, and the assumption that the central bank’s primary objective relating to foreign reserve management involves special liquidity needs and capital preservation.