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It’s no surprise that central banks around the world hold the largest share of the world’s gold in their coffers. And it turns out that their reasons for holding on to gold are remarkably similar to those of individual investors in precious metals. Let’s take a look at which countries hold the most gold and why.
Who Owns Gold, How Much, and Where
Overall, the central bank sector (which includes international financial institutions like the Bank for International Settlements) holds approximately 33,800 tonnes of gold bars. According to a recent article in Forbes magazine, the Top 10 alone account for some 23,000 of that total.
The United States tops the list, holding almost as much gold (8,133 tonnes) as the next three nations combined: Germany (3,371), Italy (2,451) and France (2,436).
Russia, (1,909), China (1,842), Switzerland (1,040), Japan (765), the Netherlands (612), and India (560) round out the rest of the Top 10 list.
While Switzerland’s gold reserves put it in seventh place overall, looked at on a per capita basis, the Alpine nation has the world’s largest gold reserve. Furthermore, its gold reserves represent 5% of its foreign reserves, a figure higher than China or Japan, and in line with India.
The U.S. stores all of its gold domestically. All of those jokes about the gold in Fort Knox, Kentucky are true; that is where most of the U.S. gold reserves are kept. The remainder is stored at the mints in Philadelphia and Denver, the San Francisco Assay Office, and the West Point Bullion Depository.
Other nations store their gold within and outside their national borders, much of it in the U.S. Recently, European countries have been repatriating gold previously held in depositories outside their own national borders. Germany for example, has moved 647 tonnes from the Federal Reserve of New York and the Banque de France back to domestic storage. The Netherlands recently repatriated a significant percentage of its reserves from the U.S. and is building a new storage site just outside of Amsterdam. Having their gold nearby and under local control makes if easier to liquidate or use in other ways, as needed.
Who’s Buying, Selling, and Producing Gold
For the last few years, Russia has been the biggest buyer of gold. In 2017 alone, it purchased 224 tonnes of bullion, financing the purchase by selling a significant percentage of its U.S. Treasury notes. From a financial perspective, this diversified Russia’s portfolio, while politically it delivered some independence from Western governments that have grown suspicious of Russia’s geopolitical intentions.
France is a reluctant seller of gold, and some politicians on the right have called to stop all future sales, and to repatriate gold held in foreign vaults. Italy, despite its recent political and economic turmoil, has stayed true to gold as a reserve. Mario Draghi, the president of the European Central Bank and a former governor of the Bank of Italy, supports that position. Gold is a “reserve of safety” and offers protection against fluctuations in the U.S. dollar, he has said.
It’s not surprising that countries that produce gold also hold it in reserve. As USA Gold reports, production in China has doubled over the past 10 years, while South Africa halved its production. For several years, the U.S. and Australia handed second and third place back and forth, until Russia stepped up production in 2014.
Canada, Peru, South Africa, Mexico, Uzbekistan, and Brazil round out the list of Top 10 producer nations. Of those nations, South Africa has the largest gold reserves, at 6,000 tonnes. Its reasoning is simple. The South African Reserve Bank told BullionStar:
“the SARB as a central bank can be viewed as a “traditional gold holder” which has inherited gold reserves as part of a legacy and has over time kept its level of gold reserves unchanged to support a broad country strategy. South Africa being one of the main gold producers in the world, it is appropriate for the SARB to hold part of its official reserves in gold to confirm the country’s confidence in the metal.”
Why Central Banks Hold Gold
When BullionStar blogger Ronan Manly asked the Top 40 holders of gold reserves why they hold gold as a reserve asset on their balance sheets, he received numerous thoughtful responses, and a few “no comments.” Their reasons will be familiar to anyone who has considered precious metals—and specifically gold—as an investment.
- Liquidity. The mechanisms for buying and selling gold are well established, well regulated, and global. This gives the world’s central banks options to react in crises and emergencies. For example, as Germany’s central bank pointed out, “[our] gold could be pledged as collateral or sold at the storage site abroad, without having to be transported. In this way, the Bundesbank could raise liquidity in a foreign reserve currency.”
- Gold as a safe haven. This relates to gold’s liquidity, but also to the metal’s relative independence from fiat currencies, and its historical role as a store of value. For individual investors, this could be seen as a doomsday approach to investing, akin to having a few gold bars under the floorboards. For central banks, as the Polish central bank stated, “gold has been constantly perceived as a safe haven asset, and is particularly desirable in crisis times, when gold prices increase while other core assets’ prices have a downward tendency.”
- Hedge against inflation. This reason is often cited by individual and other institutional investors as well. Gold has traditionally kept its value against inflation and has always been accepted as a medium of exchange between countries. Its price historically has been independent of any country’s economic policy.
- Lack of risk. Unlike fiat currencies, notes, or bonds, gold is not issued by a government. Therefore, there is no counterparty, credit, or default risk. As the U.K. Treasury stated, gold is “nobody’s liability” and so cannot be frozen, repudiated or defaulted on;
- Diversification. As the Swiss National Bank stated, “As part of a good diversification of currency reserves, a certain proportion of gold can help reduce the balance sheet risk.”
Gold as a Retirement Savings Investment
Whether you hold gold as a store of value, a hedge against inflation, or to diversify your portfolio, you should be aware of the option to hold precious metals in a self-directed retirement savings account. With a few exceptions, the IRS allows you to hold a wide variety of precious metals in a tax-advantaged retirement savings account. This gives you another reason to consider gold—to build your retirement nest egg.
Go to our Precious Metals Center to learn more about what The Entrust Group offers.
Entrust does not provide tax and advice. It is highly recommended to seek the assistance of a tax or legal advisor before entering into any investment transaction.