Top Countries with the Largest Gold Reserves
Is Gold Bullion at a Crossroads?
Gold has had a remarkable run since it started its nascent rise in early 2001, climbing more than 650% between April 2001 and September 2011. Since then, gold prices have either taken a breather or are preparing for another upswing. Based on the gold purchases made by central banks over the last three years, it appears as though many are preparing for the worst.
Since the beginning of 2012, gold prices have taken a breather, retracing 30% and currently trading near $1,200 an ounce. But over the last three years, while the price of gold drifted lower and analysts and economists were warning investors to shun the precious metal, central banks around the world were shoring up their holdings.
Central banks first started to increase their gold reserves in 2008 as the financial crisis rolled across the globe, sending the world’s largest economy into a recession. In an effort to protect their nation’s wealth against volatility, central banks started to buy gold.
Initially, central banks were buying gold as a hedge against economic uncertainty in the United States. But now, it’s quite evident that even an economically stronger U.S. cannot prevent the global economy from slipping into a recession.
Central banks continue to hoard gold as the world grapples with any number of issues that could derail the global economy. For starters, that includes ongoing geopolitical tensions between Russia and Ukraine (and the eurozone), growing concerns between Russia and the U.S., and frosty relations between China and Japan.
Lest we forget, the Federal Reserve recently ended its overly generous trillion-dollar bond-buying program. This is an important step, since the Fed’s monetary policy is credited with fuelling the bull market that has seen the NASDAQ, NYSE, Dow Jones Industrial Average, and S&P 500 soar higher and higher since 2009.
While the S&P 500 and the Dow Jones Industrial Average continue to trade near record territory, there is fear that global growth trajectories are leaving countries economically vulnerable. China and Japan are reporting less than stellar outlooks. The eurozone is on the brink of a recession. And while it has not been officially declared yet, chances are good that Russia is already in a recession.
Why is this bad news for the U.S.? Roughly 40% of the public companies that make up the S&P 500 get sales from Europe. A slowdown in the eurozone alone could have huge negative repercussions for the U.S. economy.
The U.S. economy might be rebounding, but it cannot shoulder the global economy indefinitely.
Suffice it to say, there is more than enough going on to create tension and risk in the global markets. And the central banks know it. They’re not hoarding gold as an investment—they’re buying gold to reduce and hedge volatility in their foreign reserves.
This Is Why Central Banks Are Snapping Up Gold
If central banks’ gold buying is indicative of their outlook on the global economy, they are getting increasingly worried. In 2012, gold buying from central banks rose 17% year-over-year to 534.6 tonnes. As the price of gold tumbled in 2013, central banks hoarded an additional 409.4 tonnes. By the end of 2013, central banks held approximately 30,500 tonnes of gold, or around one-fifth of all the gold ever mined.(1)
In 2014, central banks started to ramp up their buying again. During the second quarter, central banks purchased 188 tonnes in gold, a 28% increase year-over-year. During the third quarter, gold purchases increased 9.1% year-over-year to 92.8 tonnes; that represented the 15th consecutive quarter in which central banks purchased more gold than they sold.(2)
Year-to-date gold buying by central banks is up 3.3% at 334.9 tonnes. If central banks continue their gold buying ways, 2014 will be the fifth consecutive year of net demand for gold from central banks. Before the collapse of Lehman Brothers, central banks had been net sellers of gold.
There’s a good chance 2014 will end on a central bank gold-buying spree. In May 2014, the European Central Bank and 20 other European central banks, signed the fourth Central Bank Gold Agreement. The agreement, which became effective on September 27, 2014 and lasts for five years, states that the signing central banks do not have any plans to sell significant amounts of gold.
The Top 10 Countries Hoarding Gold
India currently holds 557.7 tonnes of gold, representing 6.8% of its reserves. India’s central bank increased its gold holdings by 56% in 2009, from 357.75 tonnes in Q1 to 557.7 tonnes in Q4. As a side note, India is the second-largest importer and buyer of gold. In September, shipments of gold soared 450% year-over-year to $3.75 billion. Not so coincidently, India recently removed its import tax (and other restrictions) on gold bullion, which is a bullish move.(3)
A small country with a lot of gold, the Netherlands has 612.54 tonnes of the precious metal, accounting for a whopping 54.1% of its foreign reserves. The central bank in the Netherlands said that it recently repatriated 120 tonnes of gold shipped to Amsterdam from New York. The goal is to keep 31% of its reserves at the central bank vaults in Amsterdam, versus the current 11%.(4)
Japan’s gold reserves have remained unchanged at 765.22 tonnes since the first quarter of 2001. After two decades of ultra-low interest rates, Japan recently announced another round of quantitative easing. As one of the world’s major economies, Japan could add gold to its holdings to stabilize its currency.
Banking may be big in Switzerland, but gold is also important. The company currently has 1,040 tonnes of gold, accounting for 7.5% of its foreign reserves. Switzerland recently rejected an initiative that would have seen the country’s central bank hold 20% of its assets in gold.
From 2008 to 2009, China’s central bank increased its gold reserves 75% to 1,054 tonnes. China has not updated its bullion reserves since then. As the world’s largest producer of gold, suffice it to say, China has been quietly adding to its reserves.
Between the first quarter of 2009 and the third quarter of 2014, Russia’s gold reserves soared 116%, from 531.87 tonnes to 1,149.80 tonnes. Gold currently accounts for 9.9% of the country’s foreign reserves. Why the sudden love for gold? Some see it as a sign the country is reducing its dependence on the U.S. dollar and the euro. Others see it as Russia fortifying its foreign reserves in the face of economic sanctions and a recession.
France currently holds 2,435.4 tonnes of gold, representing about 65.3% of its total foreign reserves. France has been pretty quiet on the gold front—neither buying nor selling gold since before 2010. The Bank of France says it won’t sell gold because it provides “a level of confidence, an element of diversification, and can absorb some volatility from the central bank’s balance sheet.” Not a bad idea since the country is teetering on a recession.(5)
At 2,451.8 tonnes (65.9% of foreign reserves), Italy might have the third-largest holding of gold reserves, but they haven’t been that aggressive with adding to their haul. Italy’s central bank hasn’t added to its reserves since well before the new millennium.
The largest economy in the eurozone is the second-largest hoarder of gold bullion. The country currently has 3,384.2 tonnes ($141 billion) of gold, which accounts for 67.0% of total foreign reserves. Germany only keeps 31% of its gold at home. The rest is being held by the Federal Reserve in New York (45%), London (13%), and Paris (11%).
1. United States
The world’s largest economy currently holds 8,133.5 tonnes of gold, representing approximately 72% of its foreign reserves. Interestingly, U.S. gold reserves have been pegged at approximately 8,133.5 since the first quarter of 2005. While few people can actually claim to have seen any of the country’s supposed gold reserves, we’ll have to take their word for it.(6)