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 several years, it appears as though many are preparing for the worst.
Since the beginning of 2012, gold prices have taken a breather, retracing roughly 25% and currently trading near $1,300 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, there are ongoing geopolitical tensions between Russia and other countries, 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 fueling 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.? Well, roughly 40% of the public companies that make up the S&P 500 get sales from Europe. A slowdown in the eurozone could have huge negative repercussions for the U.S. economy.
The U.S. economy might be rebounding, but it cannot shoulder the problems of the global economy indefinitely.
Suffice it to say, there is more than enough going on to create tension and risk in 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 the 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.
This amount only increased in 2014. Central banks around the world purchased 584.9 tonnes of the yellow precious metal.
In 2015, their reserves increased by another 566.7 tonnes.
In 2016 so far, central banks remain active. Their actions are speaking louder than their words. They want the yellow precious metal regardless of the prices. In the first quarter of 2016, they bought 108.2 tonnes of gold. In the second quarter, they added another 76.9 tonnes.
Here’s something you should know: the second quarter of 2016 marked the 22nd consecutive quarter in which central banks purchased gold. (Source: “Gold Demand Trends Q2 2016,” World Gold Council, August 11, 2016.)
This isn’t all. Those central banks that have gold are not selling it. Before the collapse of Lehman Brothers, central banks had been net sellers of gold.
Consider the Central Bank Gold Agreement between the European Central Bank (ECB) and 20 other central banks. It’s an agreement stating that the signing central banks do not have any plans to sell significant amounts of gold. As a whole, the per-year limit is set at 400 tonnes of gold. This agreement has been signed four times since 2000.
Between 2000 and 2007, the central banks sold the amount agreed upon. Since 2008, this amount has substantially declined. For instance, between September 2014 and September 2015, these central banks sold less than three tonnes of gold. (Source: “Central Bank Gold Agreements,” World Gold Council, Accessed October 4, 2016.)
|Rank||Country||Gold Reserves (Tonnes)|
|1||United States of America||8,133.5 tonnes|
|9||The Netherlands||612.45 tonnes|
The Top 10 Countries Hoarding Gold
India currently holds 557.7 tonnes of gold, representing 6.6% of its reserves. (Source: “Latest World Official Gold Reserves,” World Gold Council, October 6, 2016.)
As a side note, India is the second-largest importer and buyer of gold. Not too long ago, the Indian government imposed duties on importing gold because it supposedly impacted the country’s current accounts. These tariffs have eased a bit, and this could be something that could act as a catalyst for higher gold prices.
India’s central bank increased its gold holdings by 56% in 2009, from 357.75 tonnes in Q1 to 557.7 tonnes in Q4, a remarkable increase in reserves.
A small country with a lot of gold, the Netherlands has 612.45 tonnes of the precious metal, accounting for a whopping 64.42% 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%. (Source: “The Netherlands Has Repatriated 122.5t Gold From US,” Bullionstar, November 21, 2014.)
Japan’s gold reserves have remained unchanged at 765.21 tonnes since the first quarter of 2001. After two decades of ultra-low interest rates, the Bank of Japan recently started to implement negative interest rates. This is despite all of the quantitative easing it has been doing for several years now. 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 Swiss National Bank currently has 1,040 tonnes of gold, accounting for 6.6% 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.
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. Russia’s gold holdings now amount to 1,506 tonnes and account for 16.5% of the country’s foreign reserves. Why the sudden love for gold? Some see it as a sign that 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.
China has been very interesting over the past several years. From 2008 to 2009, China’s central bank increased its gold reserves 75% to 1,054 tonnes. After this, it never updated its reserves until recently. It now has 1,828 tonnes of the precious metal. This amounted to just 2.4% of the reserves.
But don’t think that’s all for China. There are many reasons suggesting that China could be buying much more gold. We will not be shocked if China eventually moves up this list to become one of the biggest gold hoarders.
France currently holds 2,435.8 tonnes of gold, representing about 67.2% 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.” That is not a bad idea, since the country is teetering on a recession. (Source: “Banca d’Italia says gold reserves key to cenbank independence,” Reuters, September 30, 2013.)
At 2,451.8 tonnes (69.7% 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. It has a very similar stance as the Bank of France on gold. In 2013, the now-senior deputy governor of Banca d’Italia, Salvatore Rossi, said “Not only does it have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets in that it is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution.”(Source: Ibid)
The largest economy in the eurozone is the second-largest hoarder of gold bullion. Germany currently has 3,378.2 tonnes of gold, which accounts for 70.1% of total foreign reserves. Germany only keeps 31% of its gold at home. The rest is 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 76.2% 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 its word for it.